The San Diego Daily Transcript – Apartment vacancies relatively unchanged, as rents inch higher

The San Diego Daily Transcript

 

By: Thor Kamban Biberman

 

SAN DIEGO – Apartment vacancies have stabilized over the past year-and-a-half as rents continue to inch upward in San Diego County.

According to a MarketPointe Realty Advisors’ RentalTrends September report, the overall vacancy rate, which topped 5 percent in March 2011, has fluctuated modestly over the past 18 months to a current average of 4.5 percent.

“Not exactly on par with the 2 percent vacancy rate run that occurred in the late 1990s and into the early 2000s, but a healthy rate nonetheless,” the report states.

Russell Valone, MarketPointe president, said he expects the apartment market will be impacted by the home foreclosure market eventually, but that the phenomenon has yet to take hold.

“Investor-owned foreclosure properties have been rented out —maybe not to former owners themselves, but to people like them,” Valone said.

Valone said the difference between this and the next cycle is that the investors will be selling the foreclosed properties to current renters who are ready to make the move to for-sale housing. That in turn creates more vacancy in apartments.

“However, we anticipate demand for rental units continue to intensify as lack of confidence in the for sale housing sector coupled with continued population growth especially among echo boomers (under 35 years of age) who are somewhat hesitant to purchase for a number of reasons continues to accelerate,” MarketPointe continued.

As for what people want in a rental unit, MarketPointe said more than 53 percent of the units rented fall within the twobedroom classification followed by an additional 35 percent in the one-bedroom category. Three-bedroom units account for fewer than 8 percent of the supply and studios account for just 3.57 percent of the market. Four-bedroom units, meanwhile, represent just a fraction of the market at 0.20 percent.

The average rental rate countywide rose 1.34 percent in the last year, to $1,375 per month this month — compared to the average $1,357 per month seen in September 2011.

Valone said he has been somewhat surprised by one fact. “I thought we might see more upward pressure on rents,” Valone said.

Despite a $1,715 per month rent — the highest average in the county — MarketPointe reported the North County coastal area posted the lowest vacancy rate — which may suggest that people are doubling up to get into the best units when necessary.

The East County had the lowest average rent this month at $1,154, followed by the South County with $1,231, the Interstate 15 Corridor with $1,466, and the San Diego Central market with $1,471 per month.

The average rental rate had peaked at $1,343 per month in September 2008 prior to the downturn. Six months later, the rental rate declined modestly for the first time in the 21-year history of Rental Trends.

“The next three audits saw a continuation of this downward trend as the average rents slid by 2.5 percent below the aforementioned peak to a September 2010 average of $1,310 per month,” the report continues.

While rental rates among new properties are often higher than that $1,375 average, new units continue to lease quickly — demonstrating the strong demand for new rental housing.

Eight new properties entered the market during the past six months providing 1,277 new units of which 799 had been absorbed by the time of this month’s survey.

“I was happy to see how well the new properties have done,” Valone said.

The largest of these is Domain by Alta, a 379-unit complex by Conrad Prebys’ Progress Construction Co. in Kearny Mesa. The rents for the 598- to 1,309-square-foot units range from $1,515 to $2,775.

Other arrivals since last spring include Global Integrity’s 306-unit Circa 37 at Civita in Mission Valley, Rosewood Associates Ltd.’s 278-unit Rosina Vista complex in Chula Vista, and Century Partners’ 87-unit apartment property in Linda Vista.

Since mid-1998 there have been more than 27,264 new rental unijts added to the San Diego County rental marketplace. Of the 27,264 units released since 1998; 25,865 units or nearly 95 percent have been absorbed.

Not all of these units remain in the rental inventory however, as some have been converted to for-sale units. Additionally, some projects, both condominium conversions and newly constructed units, entered the rental market after unsuccessful sales programs were discontinued.

MarketPointe’s surveys are getting larger. This audit of RentalTrends cover a total of 124,976 units contained within the 839 rental projects, an increase of 1,636 from its previous audit as a number of new units were released to the marketplace in the past six months.

A total of 10,654 units contained within 52 projects have been identified as future market rate rental housing developments in San Diego County.

The San Diego Central submarket will be the most active submarket with just under 5,000 units in the entitlement process.

The East County, North County coastal and Highway 78 Corridor submarkets all have fewer than 1,000 units in the pipeline.

An estimated 2,000 units in eight projects are currently under construction countywide.

One of those projects Casa Mira View by Garden Communities in Mira Mesa, will eventually have 1,800 units at buildout.