San Diego–City of Contradictions
- Oct 15, 2014
Though analysts are working on the numbers for the third quarter, there’s still a small window in which we can take a look at what quarter two had to show us about the real estate market in 2014. San Diego is a city of ups and downs and quite a number of contradictions that keep investors guessing in some areas, but the general consensus seems to be that the market is stabilized if not improved.
To first consider employment numbers in order to gain a picture of the city’s general economic health, 32,200 new positions were added in the city over the 12 months that ended in June 2014, according to data provider Marcus & Millichap, accounting for a 2.5 percent increase in San Diego’s payroll. That was an uptick from the 21,200 new jobs created during the previous 12-month timeframe.
The improving economic climate has pushed the homebuilders in the area to slightly ramp up activity, with around 4,000 single-family permits released in the city in the first quarter, a rise of roughly 50 percent compared to the same
timeframe in 2013. Multi-family permitting has had a slower start to its year, decreasing by about half to around 1,900 units in the first quarter. Completions totaled 2,100 units over the 12 month period ending with this year’s second quarter, including 850 units that were finished during the first quarter. The project bearing most of that load was 13th and Market, which added 264 residential units to the downtown area.
According to Marcus & Millichap’s most recent data on the San Diego multi-family market, construction is expected to provide average vacancy with an increase of 40 basis points by the end of 2014, an effective increase of around 4 percent. Apartment demand will also go up by 1.2 percent, in spite of the rise in vacancy. While rents will continue their slight appreciation, the year being set to see an average rate higher by around 3.5 percent compared to last year, 2014 will trail 2013 in year-over-year change, with last year having recorded an increase of 3.8 percent in rent rates. Marcus & Millichap’s projection places average effective rents at around $1,512 per month at the end of 2014.
One area in which San Diego has remained relevant and has continued to perform relatively well is the medical office sector. Vacancy in this sector has dipped over the past 12 months by 70 basis points, to an average value of 9.9 percent, or right about on pace with the national average. The more encouraging number is the difference from the highest value recorded during the recession, as the current average vacancy is 320 basis points below that level. Keeping in perspective that the past 12 months have seen 400,000 square feet of medical office space come online in San Diego, it becomes even more apparent that the local market is slightly improving, adding jobs to this southernmost SoCal city.
Charts courtesy of Marcus & Millichap