San Diego rents down for the first time since Great Recession
Rent in San Diego County is down very slightly, about 0.3 percent, but expected to drop more.
Rent in San Diego County is down for the first time since the Great Recession as the region is rocked by COVID-related job losses.
Average rent in San Diego County was about $1,850 a month in the second quarter, a small reduction of 0.3 percent annually, said real estate tracker CoStar. It is notable because rent hasn’t dropped in the county since the third quarter of 2010 and any talk of a reduction at the start of the year was unthinkable.
Experts say the once-unstoppable rise in rents in San Diego County has been halted by large job losses, or income reductions, related to COVID-19 and a lack of people signing new leases in the region’s most-recently opened luxury buildings.
Alan Nevin, real estate analyst at Xpera Group, said the actual rent price with special offers — sometimes called the “effective rent” — is probably a better way to look at what is happening. He said many of the luxury buildings are offering one to two months of free rent. That way they don’t have to lower rents and then be prevented from raising them substantially later under statewide rent control passed in 2019. CoStar said the effective rent was closer to $1,830 a month in the second quarter.
“What they would rather do is have it free upfront so they can maintain their pro forma rents until things get better,” Nevin said.
An example is the Shift building in East Village. Open in 2018, the luxury building on paper has an average rent of $2,578 a month. But, it is also offering two months free rent and an additional $1,000 credit for its “Look & Lease” special.
That’s not to say some high-end apartment complexes are not also lowering rent a bit to attract new tenants. The 300-unit Palisade UTC, which opened around this time last year, has lowered its average rent to $3,949 a month, down about $151 since opening.
Rent is not down across the board. Losses are mostly concentrated in luxury buildings in four areas: Downtown San Diego (down 2.2 percent annually), University Town Center (down 7.1 percent), north shore cities of Del Mar, Encinitas and Solana Beach (down 4.2 percent) and the south I-15 Corridor with Mira Mesa and Sorrento Valley (down 4 percent).
Meanwhile, a lot of the areas with older, and cheaper, apartments have actually seen rents bump up annually. Chula Vista and Imperial Beach have seen rents rise 3.1 percent, National City is up 3.4 percent and Poway/Santee up 2.7 percent.
Joshua Ohl, CoStar managing analyst, said the rent changes go beyond just job losses. He said the extra $600 a week in unemployment benefits has meant rent in older apartments has stayed remarkably stable, but luxury units largely suffered because they were built around extensive amenities.
He said some of the newest apartments are marketed with high rents because of gyms, pools and other features that had to be closed to prevent spreading the virus.
“If all those things are closed, what are you paying for?” Ohl said.
He said it’s possible the situation could flip in what segment of the market is suffering. He said luxury units largely cater to white-collar workers who are more likely to keep jobs as the pandemic continues. Meanwhile, low-income renters out of work recently stopped receiving the extra $600 a week in extra unemployment — potentially making less fancy, older apartments subject to tenants unable to pay.
President Trump has said he would like to see the benefits continue, at $300 a week, but Congress is still deadlocked on what to do. Ohl said everyone is waiting to see what happens because it could be devastating for landlords if the increased benefits are not reinstated.
The San Diego County unemployment rate was 13.9 percent in June, down from 15.2 percent the previous month, but still near historic highs.
The countywide vacancy rate has grown since the March shutdown orders from Gov. Gavin Newsom. In the second quarter, the vacancy rate was 5.49 percent, up from 4.7 percent at the same time last year.
CoStar has had to revise rent forecasts frequently this year as the COVID situation changes. For example, the second shutdown of businesses in California forced new rent projections. It now says countywide rents will be down 3.6 percent by the end of the year.
Rents have been dropping nationwide during the pandemic, but like San Diego, it isn’t by much. Zillow said last week the typical nationwide rent had fallen by only $5 in the spring to $1,723 a month.
San Diego is still a tough place to rent if money is tight. A study released this week by personal finance website SmartAsset calculated, in July, a person would need to earn $101,250 a year to afford the average cost of a two-bedroom apartment in the San Diego metro area, about $2,400 a month, the seventh-highest of major American cities.
Its study is based on the U.S. Department of Housing and Urban Development guidelines that a person should not spend more than 30 percent of their income on housing or be qualified as cost-burdened. So, its calculation may seem high to San Diegans who are used to spending half their income on rent.
San Francisco required the most at $194,796 a year and was followed by New York at $140,853 and Washington, D.C. at $132,552. El Paso was the least of the 25-biggest cities, requiring $34,133 a year.
Note: Apartment deals are based on promotions on complexes’ websites but deals may be different for individual renters because of various factors, such as the length of a lease or how quickly a lease is signed after a tour.
- Shift, East Village: Eight weeks free and a $1,000 credit “Look & Lease” special
- Pinnacle on the Park, East Village: Up to eight weeks free
- 13th & Market, East Village: Up to eight weeks free and half-off deposit
- EV Lofts, East Village: Security deposit of $250 (usually one month’s rent)
- Lux UTC, University Town Center: Up to $5,000 credit on some units
- Strata, East Village: Eight weeks free rent
- Marc, San Marcos: Up to one month free
- Broadstone Makers Quarter, East Village: Up to two months free rent
- Park 12, East Village: Up to eight weeks free
- Urbana, Chula Vista: $2,000 cashback on a 13-month lease
- The Residences at Escaya, Chula Vista: Up to six weeks free
- Hanover Mission Valley: Up to six weeks free and $1,000 off rent
- Valentina by Alta, Harborview: Eight weeks free on some units
- Alcove, Escondido: Up to $1,500 off one month on some units
- Luma, Little Italy: One month free and an additional $500 credit
- Marisol, Carlsbad: One month free on one-bedroom apartments
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