San Diego Multifamily Market Report | 92115 & 92116

Current Market Trends and Legislative Shifts

Legislative Developments Impacting Multifamily Investments

1. Rent Reporting (AB 2747):

Starting January 1, 2025, landlords must offer tenants the option to report positive rental payments to credit reporting agencies, with existing leases required to comply by April 1, 2025. Landlords with buildings of 15 or fewer units are generally exempt unless owning multiple properties or operating as a corporation or REIT. This mandate aims to enhance tenant credit profiles but introduces administrative complexity. Our opinion is that this could strengthen tenant relationships and payment reliability, though smaller operators may find the implementation burdensome and may need to adapt systems to streamline compliance.

2. Fee Transparency for Service Members (SB 611):

Effective April 1, 2024, landlords cannot charge additional fees for rent payments or lease termination notices and must refund any additional deposits charged to service members within six months if payments are current. While this is aimed at improving affordability and transparency, the multifamily community believes these restrictions may reduce supplemental income streams, requiring landlords to optimize base rents to maintain the same bottom line.

3. Security Deposit Documentation (AB 2801):

Starting April 1, 2025, landlords must photograph units before move-in and after move-out for documentation purposes, with new lease compliance required by July 1, 2025. This change intends to minimize disputes over deposit deductions, introducing additional operational demands. Landlords may need to prepare for increased administrative workload and may need better organization systems.

4. Extended Eviction Response Period (AB 2347):

As of January 1, 2025, tenants have 10 court days, up from 5, to respond to eviction filings. This extension provides tenants with more time to address disputes, however, this will most likely lead to tenant turnover and increase holding costs, requiring property managers and owners to adjust cash flow expectations.

5. Statewide Rent Cap in San Diego County:

San Diego County allows for annual rent increases of 5% + CPI (SD County 3.6%), which equates to an 8.6% annually for most properties over 15 years old. Investors may need to prioritize high-growth areas and value-add opportunities to maintain competitive returns.

Key Development Projects: SDSU Mission Valley

The SDSU Mission Valley project exemplifies transformative urban development, blending education, innovation, housing, and sustainability. This initiative, located at the former San Diego Stadium site, offers significant investment potential to surrounding areas:

• Housing Impact: The addition of 4,600 residential units, including 460 affordable units.
• Economic Growth: An anticipated $3 billion annual economic impact underscores the long-term value of this development for local businesses and real estate markets nearby.
• Timeline: By 2026, the first residential, retail, and innovation district spaces are planned to be operational, coinciding with rising demand fueled by an expanding SDSU student body (15,000 additional students).

Investment Outlook

The SDSU Mission Valley project is poised to create ripple effects across the local real estate market. The proximity to educational institutions, a vibrant innovation district, and enhanced community amenities should drive a sustained demand for multifamily housing. An investor willing to make a strategic entry into this market could yield long-term gains. Through my role as the College of Business President, I have inside knowledge of SDSU’s future plans of moving the upper-class student body to this campus, thus increasing the need for student market rate housing in neighborhoods like Kensington, University Heights, Normal Heights, and Northern North Park.

College Area Community Plan Update: Realistic Perspectives

The College Area Community Plan Update outlines ambitious changes aimed at addressing housing shortages and enhancing urban density by 2050. However, our opinion is that its feasibility and market alignment warrant closer examination, especially in the context of a low-income area.

Housing Capacity Expansion

The plan’s goal to increase capacity to 35,000 units, including over 18,000 new homes by 2050, prioritizes urban infill and transit-oriented development. While this makes sense near SDSU, where student housing demand could support higher-density projects, we believe the broader workforce housing market may struggle to absorb the high-cost developments that are envisioned. The limited income levels in the area may constrain demand for market-rate units, leading to potential oversupply and slowing of rent growth.

Mixed-Use Developments

Proposed zoning changes to allow taller, denser buildings integrating residential, retail, and office spaces are intended to revitalize the neighborhood. While these adjustments are forward-thinking, it’s our opinion that the success of such developments depends on tenant demand. Beyond the SDSU-adjacent areas, demand for premium mixed-use spaces may not materialize at the scale anticipated, given the local economic landscape and current market conditions.

Affordable Incentives

Fee reductions and density bonuses aim to create diverse housing options, but the gap between development costs and local affordability remains a challenge. Developers may struggle to align high construction costs with the pricing needed to attract non-student residents, limiting the overall impact of these incentives in low-income areas.

In conclusion, while the plan has merit in specific zones in the SDSU vicinity, the broader market realities suggest that high-cost housing developments may not achieve the intended absorption or economic diversity that is needed in the demographic areas of this plan outside of the immediate college area, however, only time and the market will tell.

Demographic and Economic Insights

San Diego Zip Code 92115: A Market Under Strain

The 92115 area, heavily influenced by the presence of San Diego State University (SDSU), faces significant challenges that we believe make it less attractive for long-term multifamily investment. Key factors include:

• Demographics: With a median age of 28.8 and a population heavily skewed toward the student body, 92115 experiences higher turnover rates. While this supports consistent rental demand, the operational costs associated with high turnover diminish profitability for owners.
• Income Disparities: The median household income of $68,156 is notably lower than both the San Diego County and state averages. This, in conjunction with a rent-to-income ratio of 31.6%, results in affordability pressures, which may limit opportunity for market rate rent growth.
• Economic Strain: With a 22.6% poverty rate and 7.2% unemployment rate, there are some underlying economic vulnerabilities. These factors contribute to a less stable rental market and increase tenant retention challenges.

Conclusion

While 92115 benefits from its proximity to SDSU and consistent student housing demand, the area’s affordability challenges, and economic instability lead some investors to believe there is more risk compared to other comparable markets. On the other hand, it is our professional opinion that the market still benefits from strong fundamentals and growth that work for investors looking for lower price points and higher returns when compared to other nearby markets.

San Diego Zip Code 92116: A Promising Market for Strategic Growth

In contrast, the 92116 area, encompassing neighborhoods like Normal Heights and University Heights, represents a different compelling opportunity for multifamily investment.

• Demographics: With a median age of 36.2, this area attracts young professionals and middle-income households, creating a more stable tenant base for Landlords. With a higher median household income of $93,300 and a rent-to-income ratio of 19.7%, this indicates a financially secure renter population. We expect healthy rent growth in the future as the area continues to grow and gentrify.
• Economic Vitality: Anchored by its proximity to employment hubs such as Mission Valley, Downtown San Diego, and the Kearny Mesa tech corridor, 92116 benefits from diverse economic drivers. The healthcare sector, retail businesses, tech sector, and cultural amenities further bolster its appeal.
• Student Housing Demand: As SDSU expands through the Mission Valley development, the demand for market-rate student housing is likely to spill over into University Heights and Normal Heights. These neighborhoods offer a more desirable lifestyle for students and young professionals who prefer off-campus housing with easy transit access.
• Workforce Housing Opportunities: With rising rental demand in 92116, driven by its walkability, transit connectivity, and vibrant community atmosphere, the market positions itself as an ideal market for workforce housing developments.

Conclusion

It is our opinion that 92116 offers a perfect confluence of demographic stability, economic vitality, and growth potential, particularly in the context of SDSU’s expansion. With the increasing demand for high-quality, market-rate housing in this