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Apartment Market Snapshot


San Diego County Multi-family Fundamentals

According to Fannie and Freddie the future looks bright for multifamily as they are forecasting another strong year ahead. The multifamily sector looks to remain quite healthy in 2014 based on current data. We expect multi-family growth to moderate as conditions return to long-run historical levels. Investment index from Freddie Mac multi-family shows that multi-family should remain an attractive investment for the next few years. Fannie Mae expects continued demand for multi-family housing in 2014 from both tenants and property owners based on a number of key factors: improving job growth, increasing number of renter household formations, new apartment supply and rising home prices. The ongoing demand for multi-family housing was evident during the last quarter of 2013 which usually shows a seasonal slow down. Instead rent growth appears to have been positive with vacancy levels remaining steady despite the new additions to the existing supply coming online later in the year. According to Costar, multi-family mortgage debt outstanding rose to $895 billion, an increase of 1.3% from the 3rd quarter and $36.6 billion or a 4.3% from the 4th quarter of 2012. Rising property income and values continue to boost the performance of multi-family mortgage loans. Multi-family mortgages performed relatively well during the downturn and for most investor groups. Delinquency rates are now back to the low end of their historical range.

Rental Market Performance

The Countywide vacancy rates have seen a slight decrease of .1% which could be considered negligible according to the research from the SDCAA. Stabilized and or rising occupancy has helped drastically in property income levels across the market acting as a positive force on pricing. The San Diego County Apartment Association provides a great service in rent studies as well as occupancy levels, please visit their site at sdcaa.com for more details.

Sales Transactions

The transactions for Q.1, 2014 decreased from 109 to 82. As inventory remains at critical low levels cap rates have increased slightly with an average of 5.43% and the gross rent multiplier is now averaging 10.87.

Market Projections

With the continued growth of San Diego by nearly 40,000 residents per year and with half of those residents renting we are in need of a much larger supply than we are currently providing. We are currently averaging approximately 2,300 new units coming online every year where the supply is not keeping up with demand. As of September of last year we saw 2,258 new units come online, the year end numbers are not yet available. The diminished delivery resulted into a vacancy rate of 4.0% according to the SDCAA. Meyers Research Real Fact report for the Q.3, 2013 states that San Diego is rated 12th in strength behind San Francisco, San Jose, Seattle, Dallas, and Los Angeles a total of 28 metropolitan areas were surveyed nationally. The survey tallied rent increases, occupancy, absorption and multifamily permit levels among other factors. The report stated that San Diego County’s levels stood at 5.5% on a weighted investment index. San Diego’s rate was quite a bit better at 6.1% but not nearly as healthy as San Francisco at 7.3%, still Real Fact said “there is plenty to celebrate.” San Diego County had a predictable 5,228 multi-family permits in 2013 which represented a 55% increase over the prior year a far cry from Houston and Dallas with 12,500 and 13,500 expected permits respectively. We expect there will be a continued up-trending in values in the short term, however once interest rates adjust we will see a cooling off of the market with an immediate adjustment in cap rates and values.

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2011 Vacancy & Rental Survey

Broken down by region, the City of San Diego is experiencing the highest vacancy rate at 4.1 percent, followed by South Bay and North County at 4.0 percent, and East County at 3.3 percent. Each region’s vacancy rate has decreased since last reported six months ago in the fall. View the full report to see what the rental and vacancy rates are in your investment neighborhood.

Legislator Wants to Force You to Hire Another Company’s Employees

A bill before the State Legislature intends to put government in charge of who private businesses can hire and essentially forces property owners and management companies to discriminate against their current employees. 

CAA Pushes Back on Legislative Proposals for Property Tax Increases

CAA is on the front lines combating an effort by Democrats and public employee unions to increase taxes either through initiatives or through other creative means.

San Diego Real Estate Economic Forecast

The demand for apartments continued increasing from 2009, with 3,420 units of positive net absorption. Although the number of net move-ins was 82 percent higher than in the prior year, this was the lowest absolute level of net absorption among the four metro areas in Southern California. Occupancy increased 0.3 percent to 95,4 percent, which is the highest level among the four metro areas.

Average monthly rentes fell by 0.2 percent to $1,320, while same-store rents rose by 0.9 percent. Despite experiencing average rent declines in 2010, the most expensice regions remain the coastal communities with average monthly  rents of $1,696.


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