There has been very significant upward pressure on apartment
rents throughout San Diego County through 2018. San Diego Apartment rental rates have increased
approximately 6%, per year on a compounded basis. Month-to-month apartment tenants typically
pay rents that are approximately 10% higher than a tenant that commits to a
full year lease. Apartment managers have
commenced very high tenant screening standards, are requiring higher deposits,
proof of apartment insurance, annual walk-through inspections, and stricter
lease terms. The high cost of residing in San Diego has caused an increase in
out-migration of some residents. However,
the demand for rentals still far exceeds the supply.
According to Marcus and Millichap, developers are underway
with 7,800 apartments with delivery dates extending into 2021. More than 40 percent of this pipeline will be
finalized in the next three quarters. Most
of these new multi-family projects are high end and near the urban core.
The San Diego Economic Index published by the Burnham Moores Center for Real Estate, University of San Diego, reported gains in the final year end numbers.
Highlights of the report include: "Residential units authorized by building permits ended the year with two very strong months. For 2013, total residential units authorized increased by 46 percent to end at the highest level since 2006. The gain was largely due to permits for multi-family units, which were up almost 64 percent, compared to a 17.6 percent increase in single-family units. This left single-family units authorized at 2,565, down from more than 9,000 a year each year from 1998 to 2004. . . Both labor market variables continue to be under downward pressure. Both initial claims for unemployment insurance and help wanted advertising have been down and down sharply for three straight months. Despite these negative results, the local unemployment rate ended the year at 6.4 percent, down from the 6.9 percent rate of November and the 8.2 percent rate at the end of 2012. After seasonal adjustment to take into account hiring during the holiday season, the unemployment rate is 6.8 percent, the first time it has fallen below 7 percent since October 2008. . . The political turmoil over the federal government shutdown, the extension of the debt ceiling, and the rollout of the Affordable Care Act may have finally taken its toll on consumer confidence, halting a string of six consecutive gains for that component. . . Like the broader market averages, local stock prices were up spectacularly during the year, advancing more than 36 percent. That lagged the NASDAQ Composite (up 38.3 percent) but topped the Dow Jones Industrial Average (up 26.5 percent) and the S&P 500 Index (up 29.6 percent). . . The national Index of Leading Economic Indicators was up for the sixth consecutive month, which signals continued growth in the national economy. The “advance” estimate of GDP growth for the fourth quarter of 2013 came in at a solid 3.2 percent, down from the 4.1 percent growth of the third quarter but up sharply from the 0.1 growth in the fourth quarter of 2012."
Our appraisal office recently appraised several apartment properties in central San Diego coastal areas. The statistical data supported using a vacancy allowance in the 2.5% to 3.5% range. Rental rates show continued growth and cap rates were in the 4.25% to 4.75% range for smaller income properties of newer construction. The asking rate statistics for San Diego County multi-family properties indicate that asking prices are on track to recover to 2007 prices in 2014.
The New York Times recently published an article about the proposed pedestrian bridge in Otay Mesa, which is located in southern San Diego County along the United States and Mexico border. According to the article, "If all goes according to plan, air travelers in this region will be able to park their cars in the United States and walk across an enclosed 325-foot passageway directly to Tijuana International. The project would make Tijuana International a rare airport that would let passengers land in one country and leave in another." The project has the backing of major commercial developers from both countries and notes that "Each year, 2.4 million travelers from the United States use the Tijuana airport, even if it means waiting for hours at the border. They provide the airport with nearly 60 percent of its traffic."
Map of Proposed Airport Parking Access
A link to the complete article is here: http://nyti.ms/1cKaN4r