Next Space Development Realty Inc. recently purchased 25 on Fifth, a 25-unit apartment complex located at 3265 5th Avenue in Downtown San Diego, and plans to convert it into condos. | Courtesy a representative of Kidder Mathews

Downtown SD’s Shifting Multifamily Profile

Carrie Rossenfeld Multifamily

A recent report distributed by a representative of JLL calls Downtown San Diego “a hotbed for apartment construction over the last few years.” As of August 21, 970 units were delivered in the East Village since the beginning of 2018, and 2,612 units were under construction in that area of Downtown, the report says.

“Historically, Downtown was a place where people worked — not where they lived,” Darcy Miramontes, EVP at JLL, tells SoCal Real Estate. “This has shifted over the past decade, and today residents of Downtown — specifically millennials, are attracted to the area because of its urban fabric and ‘work, live, play’ environment.”

Already this year, all of the downtown submarket has delivered nearly 2,000 new apartment units and is on pace to deliver a record high of approximately 2,453 units, the report continues. There are currently 3,641 apartments units under construction at this time.

The report also says that Downtown actually has rather high vacancy rate compared to other submarkets: it’s currently at 16.2 percent compared to the overall county’s at 4.2 percent. “Landlords really push higher rents Downtown, and they’re willing to accept higher vacancy in the short-term to try to lease their projects up at these higher rents,” according to the report.

Downtown also has one of the highest rental rates in the county at $2,479 per month; the overall county is at $1,793 per month, the release says, adding that the high rates are primarily due to all the new product that has become available in the submarket. The Downtown area has also seen the most population percentage growth in recent years, with developers adding nearly 5,600 new condo and apartment units since 2010, the report says.

Darcy Miramontes | Courtesy a representative of JLL

“Downtown San Diego has seen more multifamily development in the past five years than at any other time in its history,” Miramontes says. “2017 saw a record number of units delivered Downtown, and 2018 is on track to surpass that record.”

She adds that the majority of multifamily development in the past five years has been in the East Village and Little Italy neighborhoods. “The multifamily projects in these neighborhoods are highly amenitized, transit oriented, and in close proximity to retail amenities — all items of priority for the millennial cohort that accounts for 40 percent of Downtown’s population.”

Despite the high number of Downtown apartment deliveries, Miramontes says the other San Diego submarkets are not being neglected by developers. “Many other submarkets in San Diego have seen strong supply even with the high number of deliveries in Downtown.”

And, the other submarkets aren’t going out of their way to attract multifamily development, she adds. “it has more to do with the availability of land or redevelopment sites. San Diego is highly land constrained, and developers have determined that the high cost of land in the most popular submarkets is offset by the high rents they can achieve.”

While Downtown has seen record levels of deliveries recently with rising vacancies and a concessionary market, the overall San Diego market is still severely undersupplied for multifamily product, Miramontes points out. “Beyond 2018, the supply pipeline in Downtown is moderate, the market will absorb the influx of product coming on line, rent growth will propel, concessions will burn off, and vacancies will tighten.”