What’s ahead for San Diego’s multifamily market?

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In an article featured in the Daily Transcript, JLL’s Darcy Miramontes wrote about the four primary trend drivers affecting the multifamily market right now: jobs, the overall housing market, baby boomers, and cap rates.

The largest renting demographic is made up of millennials 25-34 years old who are benefiting the most from the economy’s accelerating recovery.

Darcy Miamontes 2013

Darcy Miramontes, Executive VP, Capital Markets, Multifamily

According to the Bureau of Labor Statistics, Americans aged 25-34 years make up 17 percent of the U.S. population but accounted for 30 percent of the job gains made over the past 12 months says Darcy Miramontes.

This job growth allows them to pay higher rents in more desirable parts of town. San Diego has the fifth-largest concentration of millenials in the U.S.

Additionally, young people are renting longer and buying later because of the slow economic recovery and student debts, among other factors. This has contributed to the resurgence of apartment and condo developments downtown, all of which has affected the housing market and is fueling a shift to urban living in San Diego.

Baby boomers are also making an impact on the multifamily market. Given the difficulty in selling the large suburban homes occupied by this group, baby boomers are therefore opting to rent instead of buy when downsizing.

Lastly, San Diego cap rates are expected to remain below the national average. Three factors that have historically shown to heavily influence cap rates are credit availability, supply and demand, and inflation. In San Diego where financing is hard to obtain, cap rates tend to trend up. Since San Diego is a supply-constrained market, cap rates are kept in check. Moreover, recent interest rate hikes have been driven by improving economic trends (not inflation), which help keep real estate values up and cap rates in check.

To find out more about the multifamily market, read the full article here.

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