Still Waiting for Rent Traction in San Diego

Quarter after quarter, San Diego’s apartment occupancy results come in at terrific levels. The year-end 2011 occupancy figure was 96.8 percent. But rent growth just can’t seem to really get going in the metro.

Effective rents for new leases backtracked 0.5 percent during 2011’s 4th quarter, limiting the annual upturn to 2.8 percent, well below the national norm of 4.7 percent. Annual rent growth registered right at that mark of 2 to 3 percent across most product niches and most individual neighborhoods.

Sluggish rent growth was the story for all of Southern California throughout 2010, but that wasn’t so much the case in 2011. Orange County and Los Angeles gained enough momentum to at least rank as middle-of-the-pack rent growth performers nationally during the past year. While the Inland Empire’s 2011 rent growth stat matched San Diego’s not-so-hot number, a limited increase in the Riverside-San Bernardino area is to be expected:  that metro’s occupancy rate trails well behind the performances recorded elsewhere in the region, and the stock of shadow market rentals in the Inland Empire remains huge.

The state of the economy is one obvious influence to examine in trying to explain San Diego’s comparatively slow rent growth pace. But that really doesn’t get the job done when you take into consideration the results seen elsewhere across Southern California. According to the Bureau of Labor Statistics, San Diego’s employment base expanded by 2.2 percent during calendar 2011, and that actually was the fastest growth pace among the metros in this part of the country.

More likely, then, subpar rent growth in San Diego simply seems to come down to affordability challenges. While rents in the metro are a little lower than those in Los Angeles and Orange County, typical incomes are much, much lower. Thus, for a big block of San Diego’s populace it’s always been a challenge to come up with the bucks to cover monthly housing expenses.

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