San Diego Apartment Market Fairing Well; Rents Easing Higher

Apartment rents are edging upward in San Diego County and, with few exceptions, are climbing in the nation.

A RealFacts report found that the area it calls San Diego/Carlsbad/San Marcos posted a $1,381 average rent as of the end of the third quarter.

That was up 0.4 percent from $1,376 in both the second quarter and third quarter of 2009.

San Diego posted a 94.8 percent occupancy or a 5.2 percent vacancy rate in the third quarter, according to RealFacts, with a 5 percent vacancy rate being the industry standard for a balanced market.

A September MarketPointe Realty Advisors report arrived at a very different conclusion -- a 4.13 vacancy rate -- but variables ranging from the timing of the survey, the minimum size of the complexes and size of the sample, may account for these differences.

San Diego's 94.8 percent occupancy in the third quarter represented a 0.7 percent increase from 94.1 percent in the second quarter and 0.5 percent from 94.3 percent occupancy or 5.7 percent vacancy in the third quarter of 2009.

The market here seems to have fewer vacancy swings than in many areas.

"Many markets are experiencing soaring occupancy rates in the third quarter such as Durham, N.C., at 4.5 percent from 91.3 percent to 95.4 percent; Salt Lake City, up 2.6 percent from 92.3 percent to 94.7 percent and San Antonio, up 2.4 percent from 90.2 percent to 92.4 percent," the RealFacts report continued.

While MarketPointe Realty Advisors placed the average rent in San Diego at $1,318 in September -- which was virtually flat year-over-year -- it does seem clear from RealFacts that rents are increasing in most markets around the country.

"Rents move upwards despite news of a sluggish economy," RealFacts wrote. "It's been slow going in terms of creating new jobs for 2010 but the rental housing sector has been showing signs of recovery in the third quarter of 2010."

San Diego is faring better than Los Angeles/Long Beach/Santa Ana, which -- while having higher rents ($1,552 as of the end of the third quarter) -- saw rent decline by 1.2 percent from $1,571 in the third quarter of last year.

The best rent performer in the state in the third quarter was San Jose/Sunnyvale/Santa Clara, which saw its rent climb by 1.9 percent to $1,587 in the third quarter from $1,558 in the second quarter and up 3 percent from $1,541 in the third quarter of 2009.

Denver/Aurora, Co. saw the fastest rent growth in the third quarter alone.

Its $883 rent was up 2.4 percent from $862 in the second quarter, but was up only 1.3 percent from the $872 figure registered in the third quarter.

The Baltimore/Towson market experienced the largest year-over-year-increase in rents, according to Realfacts. That metropolitan area experienced a hefty 8.2 percent hike in rents to $1,247 as of the end of September.

This may be due to both the completion of luxury units and reversion of upscale condominiums to apartments.

Nationally, the average rent was $958 per month -- up eight dollars from the second quarter of 2010 and just $44 less than the all time high national figure of $1,002 per month in the third quarter of 2008.

While most rents are increasing, Los Angeles isn't the only major market where the rents are coming down.

"Although rents and occupancy are improving (nearly) everywhere around the country, rental housing in the desert state of Nevada has all but dried up and blown away," RealFacts wrote.

"In Las Vegas, rents declined by 0.8 percent from $763 per month in the second to $757 per month in the third quarter with a year-over-year loss at 9.6 percent. Reno is also down by 1.5 percent from $79 per month to $782 per month."

"The results of this quarter's survey suggest that rent will continue to rise in the coming quarters," RealFacts wrote.

While most markets are stronger, RealFacts warned that it may be too early for apartment owners to rejoice.

"Although the national average has been trending upward for the past three quarters, 2010 rent growth has yet to surpass the average rent for 2009, even though the largest drop in rents on record occurred in fourth quarter of 2009," RealFacts continued.

RealFacts reported that as rents become unstuck, the apartment occupancy rates are improving.

For the current quarter, the national occupancy rate has grown by 80 basis points in the quarter from 92 percent in the second quarter of 2010 to 92.8 percent in the third quarter

Occupancy remains a bright spot, inspiring rental housing recovery.

The national average year over year growth is now 1.3 percent," RealFacts continued. "There are no markets posting losses in terms of occupancy this quarter except for Tulsa at minus 0.4 percent."

After reviewing 2010 sales transaction activity, RealFacts noticed that investors are beginning to find good deals at prices that haven't been seen in some markets during the past 10 years.

Markets where buyers can acquire apartment property in 2010 at 1995 prices are Texas, Arizona and Florida.

San Diego, being listed as one of the stronger markets in most national surveys, may not see as many bargains as where apartment properties tend to be distressed.

RealFacts wrote that those who have apartment properties and can afford to hold onto them, generally are until the market improves.

"The volume is still down to a fraction of what it once at $1.3 billion year to date in third quarter of 2010 compared to the 2007 year end volume at $28.2 billion. Typically, 10 percent of the apartment inventory database trades each year.

"RealFacts estimates that figure to come in around 1 percent at the end of 2010," the report concluded.