San Diego Multifamily Market Update | March 2026
The supply wave is still here, but the peak is behind us.
By Nick Hernandez ·
San Diego delivered roughly 6,200 market rate apartment units in 2025, a 20 year high. Another 4,800 are scheduled for completion this year. That three year stretch from 2024 through 2026 will put about 16,000 new units on the market, the most in any three year period in 25 years. Most of it is Class A product concentrated in downtown, UTC, Mission Valley and Chula Vista.
That volume has had a real impact on operations. Countywide vacancy reached 5.4% in Q4 2025, up 60 basis points year over year and the highest level since 2009. Asking rents declined 1.9% over the course of 2025, mostly in the back half of the year. Downtown took the hardest hit, with rents falling 1.4% and vacancy running well above the metro average. Concessions are widespread, especially in new Class A buildings competing for the same renter pool.
But here is the part that matters if you own a 5 to 50 unit building in a neighborhood like North Park, City Heights, El Cajon, or Chula Vista: the softness is concentrated at the top of the market. Class B and C properties are still seeing tighter vacancy and steadier rent performance. Workforce housing demand remains durable. Renters priced out of the new luxury product are landing in older, well located buildings, and that is not changing anytime soon.
What is trading and at what price?
Investment sales volume picked up in 2025 compared to 2024, but activity is still well below the 2015 to 2019 average. Buyers are out there, but they are selective. Cap rates have held in a tight band between the low 4s and low 5s for three years running, and that is unlikely to move much in either direction this year. East County and North County continue to see the most transaction activity, with Chula Vista and Downtown expected to pick up over the next 12 months.
Financing is available but not easy. Most owners of smaller apartment buildings are seeing commercial loan rates in the 5.5% to 6% range. At those rates, buyers putting 35 to 40% down are still looking at thin cash on cash returns, which means most deals only pencil if you are underwriting rent growth or a value add play. Deals are getting done, but pricing needs to reflect the current rate environment, not 2022 comps.
What owners should be thinking about
The construction pipeline is contracting. Units under construction fell 22% year over year to about 11,850, and new starts slowed in 2025. That means the competitive pressure from new supply should start easing by late 2026 into 2027. If you have been dealing with slower lease ups or modest rent erosion, the worst of it is likely behind you.
If you are sitting on a building with below market rents and deferred maintenance, this is still a good window to execute a unit turn strategy and capture that spread. Value add rent growth is running around 5% according to recent Fannie Mae data, stronger than any other asset class.
If you are thinking about selling, the buyer pool is growing but pricing expectations still need to be realistic. Deals are getting done when sellers price to the current rate environment rather than 2022 comps.
And if you are holding long term, the fundamentals that make San Diego a strong multifamily market have not changed. Chronic housing undersupply, geographic constraints on new development, a diversified job base anchored by defense, biotech, and healthcare, and a cost of homeownership that keeps people renting longer. Those structural tailwinds are still intact.
The supply wave created some near term noise. But for owners of well located, well managed apartment buildings in San Diego, the math still works.