San Diego Apartment Rent Growth Lags as Landlords Prioritize Occupancy

Year-over-year rent growth in the San Diego apartment market has been just 0.3%, well below the 10-year average of 4.1%, CoStar reported for the second quarter.

Gains have been slow to materialize due to property managers prioritizing occupancy rates over rent growth in the past few quarters – often employing concessions to fill units, according to Josh Ohl, director of market analytics at CoStar Group.

The percentage of properties offering concessions during the second quarter was double that in 2023, for example.

However, demand is certainly there for San Diego, known as an innovation hub and one of the core life science markets in the country. There is also a sizable employment base tied to the defense industry, a strong university system and a destination for tourists from around the globe.

Those factors, along with the quality of life tied to the coastal culture, have made San Diego a desirable housing market, Ohl told GlobeSt.com.

In the past 12 months, absorption (which measures the change in occupancy over time) has tallied 5,000 market-rate units, ahead of the 10-year annual average of 3,500.

Twelve-month absorption peaked in 2021 after tallying nearly 10,000 units. Now, renter households have been coming off the sidelines, and vacancy has steadied across Class A, B, and C properties since mid-2024, with the segment falling year-over-year by 20 basis points to 5.2%, according to Ohl. But that level is still higher than the 10-year average of 4.5%.

Owners Leaning on Concessions

Ohl said operators have often had to “buy occupancy” in the form of offering concessions to fill units and to keep them filled at renewal.

“They have been offered at a much higher rate in recent quarters than they have historically,” he said.

“In the past, property managers seldom offered rent rebates or concessions on renewals. San Diego is the sixth most-expensive rental housing market in the country among major metropolitan areas, and renters have increasingly sought avenues to reduce rent payments.”

This has manifested in various ways, including concession shopping, moving from a one-bedroom unit to a two-bedroom unit with a roommate, or relocating to a cheaper housing market.

San Diego continues to see steady out-migration from the region, a trend that has persisted for over five years now, which has made the market somewhat paradoxical in the sense that demand remains high.

“Still, empty units have been sitting vacant longer than they had in the past, and dropping asking rents and offering concessions has helped to get available units occupied faster,” he said. “That has often resulted in lower effective rents on lease trade-outs.

More Units Coming Online

After 5,000 market-rate units opened in 2024, another 5,000 are scheduled to do the same in 2025.

Roughly 2,600 units have already been completed this year. Alexan Camellia (531 units in Kearny Mesa), AMLI Aero (442 units in Serra Mesa) and 64 Forty (324 units in the College Area) are among the properties scheduled to come online in the coming months.