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San Diego Apartment Sales Are Cooling

CoStar Market Insights: Sales Down Considerably in the First Half of 2018
August 6, 2018
San Diego’s apartment market finds itself in an interesting spot in 2018. Annual rent growth at the midway point of 2018 sits at 4 percent, one of the highest numbers in the country among major markets. And demand has picked up, even if development hasn’t.

But the investment market has decidedly cooled. After the second quarter, San Diego recorded the lowest two-quarter stretch for volume in a calendar year since the start of 2015 at $915 million. During the first half of 2017, investors traded $1.25 billion worth of properties, amounting to a drop of 27 percent year-over-year

In the first half of 2018, CoStar recorded 229 multifamily deals. This compares to 369 transactions at the middle of 2017. Local brokers have noted that, while interest remains heavy, there are simply fewer parties bidding on properties than in the past.

Investors have some ground to cover to catch up with last year’s cycle high. Investors traded $2.9 billion in apartments in 2017, up from $2.6 billion in 2016. But 2017 was notable for posting the two largest quarters for volume this cycle. Sales volume eclipsed $1 billion in the second quarter and $960 million in the third.

Pricing has also fallen this year, as well. Average pricing per unit ended 2017 at $270,000. Through the first half of 2018, the average price per unit stood below $260,000.

That comes on the heels of further cap rate compression. The average yield during the first half of 2018 was 4.3 percent. This compares to 4.5 percent in the first half of 2017 and 4.4 percent for the calendar year.

Last year was notable for some of the market’s largest trades in history. Pacific Ridge sold in May for $232 million, while SOFI Westview closed in June for $151 million.

In contrast, only two properties have exceeded that $100 million benchmark in 2018, compared with six last year -- among non-bulk portfolio transactions. And it took until June for those sales to hit the ledger. One of them was for Sofi Shadowridge in June. Pacific Urban Residential acquired the 314-unit, 4-Star property in Vista for $115 million, or about $366,000 per unit, at a 4 percent cap rate. It last sold in 2011 for $80.4 million at a 4.2 percent cap rate. It set a new high-water mark for pricing for North County properties above 50 units.


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.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.
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