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County's rental market `loosening up a little'

By Emmet Pierce
Union-Tribune Staff Writer

A fourth-quarter survey of apartment complexes shows rental occupancies down slightly in San Diego County as the deepening recession continues to place economic pressure on renters and landlords alike.

"What we are seeing in San Diego is apartments are loosening up a little," said Delores Conway, director for the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate. "Now we have more vacancies, but it still is considered a tight market. Rents have been stable."

Other rental markets in Southern California are faring much worse as unemployed tenants move away or double up with friends to save money, Conway said yesterday.

The occupancy rate here dropped from 97.5 percent a year ago to 94.9 percent, Conway said. The survey found that rental rates within the county rose 1.9 percent year over year to an average rent of $1,340.

Conway predicted that rents would rise by about 1 percent over the next two years. Despite heavy layoffs in the county's construction industry, some elements of the local economy are holding up.

"You have the military bases there, and lot of the military are renters," she said. "Also, there are quite a few educational institutions and many of these people are renters. Some industries are actually doing well: biotechnology, health care and telecommunications."

Some people have left the rental market to take advantage of the downward pressure on home prices created by the spike in foreclosures. Alan Nevin, director of economic research at MarketPointe Realty Advisors in San Diego, said he was surprised that the Casden survey showed an increase in rental rates for the San Diego region. Like Conway, he said many households are doubling up to save money.

"With the market as soft as it is, landlords are giving concessions," Nevin said.

Challenges facing landlords are rising unemployment among tenants, the increased availability of foreclosure homes at reduced prices and households that double up to share expenses, Nevin said.

Conway predicted that the San Diego County market would outperform other regions in Southern California when the recession ends. Although there is a "shadow rental market" created by an abundance of condos in downtown San Diego, those units tend to be priced higher than most apartments. Because of that, they haven't had a major impact on rental or occupancy rates, she said.

During the fourth quarter, the average one-bedroom rental unit in San Diego County cost $1,162 per month, Conway reported. The average two-bedroom unit went for $1,420 and three-bedroom units rented for $1,740. There was a new supply of 1,429 units in all of 2008, compared with 1,511 that are forecast for 2009.

Elsewhere in Southern California, Los Angeles County saw fourth-quarter rent down an average of 3.8 percent from the same period last year, the forecast found. Orange County rents dropped for the first time in 13 years, by an average of 2 percent. In Riverside and San Bernardino counties, rents fell 4 percent and occupancies took their biggest drop in a decade, falling to 91.2 percent from 95.3 percent.

The survey marked the first time that the six-year-old apartment forecast has included San Diego County. Working with M/PF YieldStar, Casden conducted a telephone survey of professionally managed apartment complexes throughout Southern California. The study represented approximately 30 percent of the San Diego region's apartment complexes, Conway said.