After two consecutive record-setting years of U.S. multifamily investment, investor appetite for product remains strong with sentiment cautiously bullish heading into 2016, according to the JLL’s 2016 Multifamily Perspective Report. Executive Vice President, Darcy Miramontes discusses with GlobeSt.com how this is playing out in the San Diego market.
Nationally, multifamily developments remain heavily concentrated in the Central Business Districts. This focus has sidelined suburban investment in many multifamily markets; however, the suburban multifamily sector in San Diego is certainly not suffering.
This is a highly sought-after market, with tight supply and high demand, and this continues to be the case. We have a dynamic market that draws institutional and private investors.
Multifamily developments are booming in Otay Ranch and East Village, downtown. It continues in the Mission Valley area with the potential for much more at the Qualcomm Stadium site. In North County, and along the I-15 corridor, developments are in the pipeline. Pacific Highland Ranch and Vista, specifically, have seen a significant increase. Commercial development, including multifamily, has changed Vista dramatically – its economy is dynamic and growing.
Mission Valley, UTC, Carmel Valley, Carlsbad and Vista are submarkets that are likely to experience increased in-migration from the city to the suburbs. Multifamily development growth is small, however, compared to the overall need in the county.
There are pockets of development around San Diego…because San Diego is land constrained, you will see a lot of development in infill locations here. There are areas where gentrification can occur as well, and many structures that are not being utilized to their highest and best use can be redeveloped.
Lending conditions of tighter mortgage standards and larger down payments create affordability concerns in high cost housing markets. In an environment of moderate wage growth, declining homeownership and limited single-family housing development, single-family housing prices have risen and multifamily rents have increased at a faster pace in 2015 than at any point since 2007. Persistent affordability concerns reinforce the attractiveness of well positioned suburban markets for multifamily investors, according to JLL’s Multifamily Perspective report.
I think the affordability issue is being addressed, but probably not to the extent it needs to be. If local communities worked side by side with developers more often, I think each party can get what they’re looking for. Developers would be more included to build affordable units instead of paying in-lieu fees, and if the processing of their developments could be accelerated, it could save them money and put them into projects that have affordable elements.
To find out more about the JLL Multifamily Perspective, read the full report here.
Read the full GlobeSt.com interview here.
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