San Diego County, known for its scenic coastline, vibrant culture, and thriving job market, has been a hotspot for both residents and real estate investors. However, a recent report from the University of Southern California’s real estate school suggests that the region’s rental market is poised for a more modest trajectory in the coming years.
According to the annual forecast authored by Moussa Diop, a professor at the USC Sol Price School of Public Policy, San Diego County’s rents are expected to increase at a slower pace compared to other parts of Southern California. The report anticipates an average rent increase of $119 per month, bringing the average monthly rent to $2,540 by October 2025. This projection reflects a 2 percent annual gain over the next two years, a significant departure from the double-digit increases experienced during the pandemic, according to a report in The San Diego Union-Tribune.
San Diego County’s rental market outlook places it among the slower-growing regions in Southern California. In contrast, Orange County is projected to experience a 4 percent annual rent increase, while Ventura County is expected to see a 3 percent rise. Los Angeles County and the Inland Empire are also predicted to have 2 percent annual rent growth.
One key factor contributing to the more moderate rent increases in San Diego County is continued out-migration from California. As residents seek more affordable housing options, landlords are compelled to exercise restraint in raising rents significantly. Diop underscores the importance of adding housing supply to alleviate the rent burden, but he also highlights the challenges posed by high interest rates, which could affect both renters and developers.
From a tenant’s perspective, a 2 percent annual rent increase is a welcome relief for many San Diegans who have witnessed rents skyrocket over the past few years. According to real estate tracker CoStar, the average asking rent in San Diego County has surged by 24 percent in just three years. In the first quarter of 2022, rents increased by 13.8 percent year-over-year, marking the highest annual increase since 2000.
The USC report credits San Diego County’s more controlled rent growth to its relatively robust housing construction efforts. The county has issued 5,600 multifamily residential permits so far in the year, though it falls short of the desired numbers, it outpaces the rest of Southern California in this regard.
Despite the challenges, San Diego remains an attractive market for multifamily builders, thanks to its diversified economy and a lower unemployment rate (4.1 percent, as of the last month) compared to the state average of 4.7 percent. These factors contribute to the region’s overall resilience in the face of economic uncertainties.
A significant driver of rental market dynamics in Southern California is residents’ mobility, with Los Angeles County experiencing significant population outflows. However, not all of these residents are flocking to Texas or other states. The Inland Empire was the top destination for Angelenos in 2021, with 35,400 individuals relocating there, followed by Orange County (21,600) and Ventura County (4,800). Interestingly, more San Diegans moved to Los Angeles (2,300) than the number of Angelenos who made the reverse journey to “America’s Finest City.”
For renters in San Diego County, the report provides some reassurance. Contrary to the perception of fierce competition from out-of-town renters, a majority, 80 percent, have lived at the same location for over a year. Approximately 14 percent of renters come from other parts of California, 3.5 percent from different states, and one percent from abroad.
Looking ahead, the USC report forecasts a modest increase in the vacancy rate in San Diego County, projected to reach 4.6 percent by October 2025, compared to the current rate of 3.91 percent. This shift indicates that while the rental market may experience slower growth, it could potentially offer renters more choices in the years to come.
