Downtown San Diego Condo Rental Market

I’ve mentioned the shrinking inventory dynamic downtown as it relates to available condos for sale, but what I haven’t discussed much of is the shrinking condo for rent market.

Agents from the Downtown Condo Showroom have seen a strong second home and investment property push over the last 18 months.  From my perspective, it is very difficult to find the real time numbers to support what I see in the office.  What I can tell you is that approximately 45{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of the buyers that we represent are purchasing their Downtown Condo as an investment or second home.

The following is a partial excerpt from an article published by The San Diego Business Journal, Lou Hirsh – October 4th, 2010.  While the article focuses on smaller apartment buildings, the same theory holds true for single condos in the Downtown San Diego Real Estate Market.

Supply and Demand Imbalance

According to Hirsh, Chris Zorbas from Marcus and Millichap, a San Diego based Real Estate and investment firm, said low supply and high demand is likely to remain the status quo for the local apartment market for quite some time.

Hirsh’s article further states that San Diego County hasn’t had a building boom for small to midsized apartment complexes since the late 1980s, and most of the current new projects in the pipeline are large, Class A developments being put together by entities with high levels of access to capital.

Additionally, the region continues to have barriers to entry that limit new product coming online, including higher land and construction costs than other areas of the state.

Zorbas said increased access to relatively cheap financing from various sources and the deployment of long-parked capital by investors have combined during the past two years to make Marcus & Millichap’s San Diego office its busiest nationwide for apartment-related transaction and investment advisory volume.

“We’ve been slammed,” he said.

In a recent third-quarter investment report on the San Diego market, Marcus & Millichap noted that a rising apartment acquisition trend began to take shape in the first half of 2010, as sales velocity outpaced levels set in both the first and second halves of 2009.

Researchers project that local asking rents will tick up 2.1 percent by year’s end, to an average of $1,334 a month, while effective rents — with incentives factored in — rising 2.5 percent to an average of $1,280. The county’s overall vacancy rate is expected to be 4.8 percent, slightly lower than at the close of 2009.

Based on the aforementioned information, I would like to think that the landlords that we represent at The Downtown Condo Showroom can expect a small amount of optimism as it relates to the immediate future of the Downtown San Diego Real Estate Rental Market.