Apartment complex vacancies in San Diego County rose to their highest level in 12 years, spurred by new construction, condo converters caught with empty units and a growing number of individuals renting condos to upwardly mobile tenants, MarketPointe Realty Advisors reported yesterday.
Graphic: March’s county apartment market
In its semiannual report Rental Trends, covering the last six months of apartment activity, the real estate consulting company said the vacancy rate will stand at 4.5 percent as of March 31, compared with 1.8 percent in September and 3.1 percent a year ago. This represented the highest vacancy rate since 4.96 percent in March 1995.
The average rent countywide stood at $1,261, up $20 from September when the last survey was conducted, and up $50 from a year ago.
MarketPointe checks rents and vacancies twice a year on institutional-grade apartment complexes with at least 20 units, thus leaving out small investors and individuals who rent out single-family homes, condos, townhouses and small apartment buildings.
For the latest period, 113,498 units in 790 complexes were surveyed, representing about 26.2 percent of all renter-occupied units countywide.
MarketPointe President Russ Valone said the vacancy rate is rising because more rentals are on the market.
“A couple of new projects came out, and there were some conversions that went back to the marketplace,” Valone said.
His research director, Robert D. Martinez, added that the low vacancy rate set last September may have been an aberration because so many tenants had vacated apartments being converted to for-sale condo status.
“(Converters) kick everyone out, rehab to get ready to sell and realize they’re not in a good position to sell,” Martinez said. “All the people in the units are gone, and they’ve got to start from scratch again (to re-rent the property).”
Of the 10 new apartment complexes included in this survey, five were newly constructed and five were conversions that again became rentals, the report said.
AdvertisementMeanwhile, many renters vacated their apartments and bought condos and condo conversions in the past six months, while others moved out of the county to more affordable housing markets, particularly in neighboring Riverside County.
A third element affecting vacancies is the rise in investor-owned condos and houses that are rented to tenants who would otherwise be living in commercial apartment complexes.
“They have not been able to flip these for profit and (have) put them in the rental pool,” Martinez said.
Valone said tenants in these newly opened condos typically pay slightly higher monthly rent for the privilege of living side-by-side with owner-occupied units.
“There’s this sort of better living environment to live in a condo than an apartment project,” he said.
Marney Cox, economist at the San Diego Association of Governments, said the higher vacancy rate does not yet represent a cause for concern because a figure around 5 percent is considered normal.
“You can’t have a zero vacancy rate and expect the market to work,” he said.
Cox said the demand for apartments may be slackening off as people move to more affordable southern Riverside County, Imperial County and Tijuana while retaining jobs in San Diego. The rising vacancy rate could prompt some of those out-of-county residents to return closer to their workplaces.
But Valone said rents are likely to increase over the next few months because of the wide gap between lower rental costs and higher mortgage payments.
“Rents have been held down over the past couple of years and they seem to be pushing up a little bit,” he said. “We might see, over the course of the next year, instead of 3 percent increases, more 4 to 5 percent increases.”
Looking ahead, the MarketPointe report counted 48 apartment projects totaling 9,739 units in various stages of approval. Nine with 1,469 units are expected to start construction soon, with four classified as affordable, subsidized housing projects that include 435 units.
“This indicates that, although there are a significant number of proposed units throughout the county, most are not likely to begin construction in 2007,” the report said.
Valone said some of these future projects may be processed as apartments because construction financing is somewhat easier to secure, but by the time they are completed, the owners may offer them for sale, depending on the market at the time.
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Roger M. Showley: (619) 293-1286; [email protected]
Not sure I understand the following comment from the article …
“Rents have been held down over the past couple of years and they seem to be pushing up a little bit,” he said. “We might see, over the course of the next year, instead of 3 percent increases, more 4 to 5 percent increases.”
As vacancies go up, doesn’t pricing power decrease ?
Yeah, first and for most don’t trust any stat that comes out of SANDAG. That place is a freakin joke. I work with them and you should listen too the people that work there. They have no clue and are so small town. They don’t know how to use models. They’re such a joke.
Also, I’d think that rents would fall when housing is falling.. If rents go to high and no one can afford a house, what will people do? Move away and out of town. Do rents still go up? Does home values keep going up? I doubt it.
Russ Valone & Co is anything but an unbiased observer in the SD market. They are bought and paid for by their clients.
Unlike the sales market, rents are closely tied to income. It is counterintuitive that rents would go up in a stable wage market and when vacancies are stable; and that goes double for projecting increases to outpace CPI inflation.
I think it’s disingenuous to lay the apartment vacancy rate on the condo market. Their real problem is that some of the people who earn those average wages that pay for the apartments they’re tracking are leaving town.
However, even if you buy the “condo gambit” there’s still the problem of more units coming online and not enough buyers.
> 3400 condos currently under construction downtown – current sales rate is 40 to 50 per month
> 30-40% of current 15,000 MLS listings are vacant – housing that won’t sell becomes rentals so this is another 4,000 to 7,000 rental units once the owners realize they aren’t going to sell (or the bank forecloses and …)
> some number of new construction homes and condos on the market but not counted in the MLS numbers
Oh that’s easy. It’s because the REIC in SD is trying to squeeze out every last GF and FB they can before the s*it really hits the fan…They’re too late though.
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