Not even a rent slowdown can stop San Diego’s apartment building boom.

Around 4,000 new apartments are set to open in 2025, coming near or matching totals in the past few years, which were also big for multifamily building. Unlike past eras of construction, the growth isn’t limited to one area — projects are opening from Oceanside to the border.

Rents have been essentially flat in San Diego County for more than a year, but many of the new complexes charge well above average, hitting $3,000 a month in some buildings.

“(Developers) need to charge high rents because of the high cost of construction,” said Nathan Moeder, principal with real estate analysts London Moeder Advisors.

He said new apartments are spread more evenly across the county than in recent years — so competition for tenants won’t drag rents down as much.

Moeder said competition for renters will still be there, but developers are more likely to offer concessions than come out of the gate with a lower price. For example, many new complexes are offering several weeks, or even up to two months, free.

Average rent in San Diego County in early February was $2,497, said real estate tracker CoStar, up 0.8% in a year. That’s the flattest rent increase since 2011, during the Great Recession, and a momentary pandemic blip in March 2020.

The vacancy rate in San Diego County was 5.3% in early February, down from 5.45% in the second quarter of 2024. It hit a low point for the last decade of 2.63% in the third quarter of 2021.

Higher costs of borrowing, construction labor and materials were expected by many experts to slow apartment growth. Yet another year has come without that happening.

Moeder said it’s likely most projects got financing in place before November 2023, and the region is just experiencing the tail end of that.

If all projects under construction finished on time, there would be more than 5,000 new apartments opening this year. Given the scale of the construction and delays that often come up, a safer bet is probably closer to 3,500, said Joshua Ohl, CoStar director of market analytics.

Ohl said CoStar are seeing fewer new projects starting this year, perhaps finally reflecting the current rent slowdown. However, Ohl said, apartment complexes starting construction now are likely betting on a better environment when they open. CoStar predicts rents will rise closer to historical norms in 2026 and 2027.

San Diego County wasn’t isolated in its apartment-building frenzy. Multifamily construction nationally surged in 2024, said real estate website RentCafe, which calculated more than 500,000 apartments to be completed for the first time in history.

An increase in multifamily construction has been cited as a reason for rent slowdowns across the nation. In January, Zumper said national rents for a one-bedroom were down 0.3% annually, and two-bedroom rents were flat.

In that report, San Diego ranked as the 10th most expensive rental market. New York was the most expensive, followed by San Francisco, Jersey City and Boston.

Even with a rent slowdown, some developers are going to push forward because it’s what they do, said Lori Holt Pfeiler, CEO of the San Diego County Building Industry Association.

“If they can make it pencil, they will go ahead,” she said. “Our builders are passionate about building housing. Building housing is their life. They take pride in being able to do it. They have to have that kind of attitude because you’re hitting your head against the wall every day to get the financing, get through the process.”

At 11 units, North Park’s newest apartment building isn’t exactly solving the San Diego housing crisis. Yet it represents dozens of projects that have turned aging, underused buildings into apartments.

Developer Purpose Real Estate has remade the two-story 3140 University Ave., a 100-year-old building, into a residential and retail hotspot.

Nate Cadieux, owner of the development group, said a lot of the history of the building was uncovered in the attic of the structure. Now, old San Diego Union advertisements, found in the attic, are framed in the hallways of the apartment building.

He said the roughly $8 million to buy and rehab the property was worth it to have location in North Park next to bars and restaurants. It might not have as many amenities as other new complexes, but it has plenty of foot traffic. “Nothing attracts people more than people,” he said of the location.

Remaking the building took 16 months and required new electric, gas, water and sewer systems. Cadieux said the first renters to sign leases have been young professionals. He said he expects interest from people who want to live in a more boutique-style complex, defined by its exposed brick walls and nods to history.

Rents at The Waldorf are more than county averages: For a 346-square-foot studio, it’s $2,195 a month; For a 596-square-foot one-bedroom, it’s $2,650 a month; and for a 608-square-foot two-bedroom, $2,995 a month. Prices vary by size.

CoStar said in early February that the countywide average for a studio was $1,931 a month for a studio; $2,212 for a one-bedroom; and $2,674 for a two-bedroom.

Source: SDuniontribune by Phillip Molnar