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Concessions on the Rise in San Diego

CoStar Market Insights: With Apt. Units Piling Up in Downtown, Landlords are Using More Concessions to Attract Residents
June 12, 2018
Site of the existing phase I and under-construction phase II of the Pinnacle on the Park apartment complex in San Diego’s East Village. Phase I delivered in 2015, while the second phase is set to be completed second quarter of 2019.



Supply additions are still well below what are needed to accommodate a growing population in San Diego. The San Diego Housing Commission estimates the metro will need an injection of at least 150,000 more housing units in the next 10 years, based on growth estimates, yet studies suggest cities in the county are only approving about half of the necessary permits to reach that goal. And of those permitted, even fewer proposals are breaking ground.

However, San Diego will ride a wave of deliveries over the next several years that will likely average more than 3,300 units annually through 2020 - more than 90 percent of which will be luxury units. And with those luxury units piling up, concessions have picked up.

It was only a few years ago that concessions in San Diego were relatively minimal across the area. At the end of 2015, only 9 percent of communities offered any rent specials at all. Less than three years later, that number has growth to 13 percent. A third of these properties are offering at least one month free rent.

But compared to the national trend, rent concessions are still a relatively rare commodity in San Diego. At the end of the first quarter of 2018, 20 percent of communities tracked by CoStar offered a rent special, up from 16 percent at the end of 2015. And in 2018, 9 percent of apartment buildings offer at least one month free.

Nowhere in San Diego are concessions more prevalent than in Downtown. More than 30 percent of units under construction in the metropolitan area are located Downtown, from Little Italy to the East Village. At the end of 2015, before the heavy supply additions in San Diego shifted to the submarket, only 9 percent of communities offered rent concessions. By the spring 2018, that number had grown to 19 percent, 13 percent of which are for at least one free month.

Landlords are not only using free rent to attract renters, either. Free parking, no pet fees, $500 gift cards and removing escalations on renewals are only some of the enticements property managers are offering.

With more than a third of Downtown’s inventory under construction, and a deep well of proposals passed in front of Civic San Diego, concessions are likely to remain high, even in stabilized properties. For instance, The Rey, which delivered at the beginning of 2017 and stabilized by the fourth quarter, still offered one month free during the first few months of 2018. Others, like Pinnacle on the Park, still offer more than a month free on a number of units almost three years after delivery.

Joshua Ohl, Senior Market Analyst  CoStar Group   



CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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