Q1 2025 San Diego Multifamily Market Report
Highlights
- Developers are oversaturating the market with new builds, specifically luxury Class A buildings, consequently triggering the vacancy threshold to sit only 0.5% below the peak seen during the infamous market crash of 2008.
- With rent-to-income ratios sitting near 40%, renters are struggling with affordability as they navigate a volatile market.
- Neighborhoods like Balboa Park have updated their master plans to increase density and introduce more affordable housing options, in hopes of rebalancing the local housing economy.
San Diego Demographics
- Unemployment Rate: 4.6%
- Households: 1,199,146
- Current Population: 3,311,276
- Median Household Income: $109,011
Market Performance
The San Diego multifamily sector treads a slippery slope as it attempts to recover from the repercussions of the building boom sparked by early 2020s market optimism. Vacancy rates were low post-COVID, with rent growth exceeding 12% in early 2022 and significant returns on new projects. Investors and developers financed aggressive projections and overshot the realities of today’s market, breaking ground on more units in 2023 than any year in the past decade.
New supply is dominated by luxury Class A buildings, creating a mismatch between what is being built and what renters can afford. As rent growth nearly flatlines at 0.3% per year, vacancy rates see a 10% increase downtown, while luxury buildings experience a 9.5% increase. In a widespread effort to protect property NOI, avoid dropping asking rents, and preserve asset values, 30-40% of properties are offering concessions—reaching record highs at nearly three times typical levels. Despite widespread concessions, many renters are still spending close to 40% of their income on housing, well above the affordability threshold, leaving little room to stretch further.
By the Numbers
- Sales Volume: $816M
- Cap Rate: 4.7%
- Market Sale Price Per Unit: $402K
- Vacancy Rate: 5.3%
- Rent Growth: 0.7%
- Market Asking Rent Per Unit: $2.5k
- Units Under Construction: 8.6K
- Units Delivered: 816
- Units Absorbed: 721 | Q1 2025 | Source: CoStar Group Inc.
Under Construction
Most of the 8,560 units underway are costly Class A builds, exceeding $600K, misaligned with current market demand. Only 721 units have been absorbed this quarter, indicating a growing disconnect between new construction and renter affordability. With 4,500 more units set to deliver, the market faces continued pressure as supply outpaces realistic demand.
Sales
After the November 2024 rent control initiative failed, the investment market began to show early signs of recovery. Investor interest has shifted away from heavily regulated value-add deals, which have become increasingly difficult due to tenant protections and expensive permitting requirements. Instead, Investors favor suburban institutional assets, offering cap rates of 5.0%–5.5% due to location risks and greater operational complexity.
Stability-focused buyers accept 4.25%–4.5% cap rates for Class A assets in coastal cores like La Jolla and Encinitas. Major late-2024 deals featured new builds near San Diego’s life science, tech, and defense employment hubs.
Reflecting this rebound in activity early in Q1 2025, Nuveen and Pacific Housing acquired the 440-unit, Class B Teresina Apartments in Chula Vista for $183 million at a 5.0% cap rate. Located in one of San Diego’s most sought-after suburban neighborhoods, the buyer secured nearly $190 million in debt to finance both the acquisition and planned renovations.
