less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.