High-Cost Neighborhoods See Rents Fall
By Joshua Ohl
CoStar Analytics
It turns out that the downturn in apartment rents in June wasn’t just a blip. Rents fell again in July, this time by 0.2%. That marked the first time in a decade that rents fell back-to-back during those months in San Diego. It also marked the first time that rents fell in July for two consecutive years in the past 10 years.
That brought average market-rate rents to just below $2,460 per month, with rents rising 0.3% in the past 12 months in San Diego.
Luxury apartments fared the worst during July, with rents dropping 0.6%. That came as nearly 2,000 market-rate apartments opened in San Diego during the second quarter, the most in a quarter in three years as the vacancy rate has climbed to 5.4%.
Mid-tier properties recorded no change in rent levels during the month, while the naturally-occurring affordable segment saw rents tick up by a modest 0.1%.
Rents fell in San Diego’s five most expensive areas during July by an average of 0.7%. The North Shore Cities neighborhoods recorded the largest drop of those areas, with rents falling 1.2% to an average of $3,500 per month.
The others were downtown, University Town Center, Mission Valley and neighborhoods along the South I-15 corridor, where rents collectively average just north of $3,000 per month.
The beach towns along the Central Coast, stretching from Coronado to Pacific Beach, were among the region’s best performers during July. Rents rose 0.7%, as landlords pushed rents amid the prime summer season.
Property managers have suggested that supply pressure, rising vacancies, and overall more competition to secure new households have shifted leverage to renters in recent months. Lease trade-outs often result in lower effective rents due to concessions, while renewals, which are beginning to stabilize, are driving rent growth.
Concessions at stabilized properties remain widespread. More than 25% of properties reported using them in July, the same as in June, according to CoStar research. Concession rates during the past three July’s averaged under 10%. Gift cards, free rent, and look-and-lease specials, or a combination of the three, are being employed to increase occupancy.
Many landlords expect that concessions will remain in play for the rest of the year to help stabilize occupancy, and a return to historical demand levels is not widely expected before next year.
(Posted with permission by CoStar)