San Diego is in the middle of one of the largest multifamily construction cycles in 25 years.
According to CoStar Analytics, the city entered 2026 with nearly 9,500 market-rate units under construction. After 4,900 units delivered in 2024 and a 20-year high 6,200 units completed in 2025, another 4,800 units are scheduled to deliver this year.
That’s roughly 16,000 new units in a three-year stretch.
For context, absorption has not kept pace. New supply outpaced net absorption by roughly 40% last year, pushing citywide vacancy to 5.8%, the highest level in 15 years.
This is not theoretical anymore. It’s showing up in lease-ups, concessions, and renewal negotiations.
Where the Pressure Is Concentrated
The supply is not evenly distributed.
The bulk of deliveries are concentrated in:
North Park, Hillcrest, University Heights
Mission Valley
Kearny Mesa, where inventory is projected to grow more than 50%
South County, where vacancy has already climbed near 7%
If you own in these corridors, you are competing directly with new Class A product.
If you own outside of them, the impact is more indirect but still real.
What Actually Happens First
Owners rarely cut rents immediately.
They increase concessions.
Free rent. Parking credits. Move-in bonuses.
Advertised rents stay flat. Effective rents slide.
On paper, it looks stable. In reality, net revenue is softening.
The Real Risk for Smaller Owners
Institutional operators can absorb 2 to 4 months of free rent during lease-up.
A 12-unit owner cannot.
That is where the pressure builds first.
Older walk-ups from the 1970s are not competing on amenities. They are competing on price and speed. When renters compare your unit to a brand-new project with a gym, coworking space, and structured parking, the expectation shifts.
That does not mean you slash rent.
It means you operate sharper than the competition.
What This Means for Value
Multifamily value is simple in theory:
NOI multiplied by a cap rate.
If vacancy increases and effective rents soften:
Properties that were valued at peak pro forma rents become harder to justify.
Assets with real character, strong micro-locations, or clear operational upside tend to hold value better than deals priced to perfection.
The Bigger Picture
This is largely a timing issue.
Most of this supply was financed when rates were near historic lows. New starts are already slowing because construction costs remain elevated and financing is tighter.
Short term, expect more competition in major construction corridors.
Long term, San Diego remains fundamentally supply constrained relative to population growth and land constraints.
This is a digestion period, not a collapse.
What Owners Should Actually Do Right Now
Do not default to “the market is soft.”
That is lazy analysis.
Instead:
Audit your effective rents, not just asking rents
Push your manager to increase showing volume and follow-up speed
Lead with concessions before cutting base rent
Re-run your rent comps using true effective rent data
Pressure-test your next 12 to 24 months of cash flow
Have conversations with lenders now, not after you feel squeezed
If you are evaluating ADUs or repositioning, make sure the execution risk and take-out financing are real. Not hypothetical.
This cycle will reward disciplined operators and expose passive ones.
