If you own multifamily property in San Diego, you’ve probably felt some of the pressure that’s defined the past two years: new supply coming online, concessions becoming commonplace, and headlines that make the market sound more uncertain than it actually is. But for investors who think in decades rather than quarters, San Diego’s fundamentals tell a different story.
While there are many components worth considering within the market, it is not one that inflated on speculation. The market is built on structural constraints, a diversified economy, and persistent demand that has kept vacancy low for more than 15 consecutive years. The near-term turbulence is both understandable and real, but so is the long-term case for owning multifamily property here.
Below, we break down the five core reasons San Diego remains one of the most resilient markets for multifamily investment, not just in California, but in the country. Additionally, we highlight why the current cycle may actually be one of the better windows to position or stabilize your portfolio.
1. A Structural Housing Deficit. It Isn’t Going Away Anytime Soon…
San Diego adds roughly 15,000 to 18,000 new households per year through factors such as population growth, migration, and household formation. It builds fewer than 10,000 housing units annually. That gap has compounded for years, leaving the region with a structural deficit estimated between 30,000 and 50,000 units, depending on the study.
Geography plays an interesting role in this, as it enforces a constraint that most markets simply do not face. The Pacific Ocean to the west, Mexico to the south, mountains to the east, and Camp Pendleton to the north mean there is no building outward. Simply put, San Diego cannot do what Phoenix or Austin has done. Every multifamily unit that exists in a constrained supply environment has an inherent long-term value that newer, more expansive markets lack. The city has permitted barely two-thirds of the homes it needs to meet long-term targets. Until that changes (and there is no policy pathway on the horizon that suggests it will change quickly) renter demand will continue to provide a floor under well-located, professionally managed multifamily assets.
What This Means for Investors
Near-term vacancy pressure from new luxury supply is real, but it does not erase the structural case for workforce and mid-market multifamily. Class B and Class C properties have historically accounted for more than 80% of San Diego investment transactions. These properties tend to outperform precisely because they serve the renter segment where demand is most durable.
2. A Diversified Economy That Holds Through Cycles
While single-industry markets are fragile, San Diego is not one of them. The local economy runs on defense (roughly 25% of employment, anchored by Camp Pendleton, MCAS Miramar, and a strong Navy presence), life sciences and biotech (400+ companies), technology, healthcare, higher education, and tourism. No single sector dominates, and no single sector’s collapse has the power to destabilize the entire employment base.
That diversification is a direct buffer for rental demand. When one sector contracts, others often hold or expand. The region’s unemployment rate has historically tracked below the national average, and income growth in the defense, biotech, and tech sectors continues to support renter households at multiple price points.
Major late-2024 and 2025 multifamily acquisitions were concentrated near San Diego’s life science, tech, and defense employment hubs—a signal that institutional capital is underwriting the same thesis: long-term employment stability supports long-term rental demand.
3. 15+ Years of Historically Low Vacancy
Quarterly vacancy rates in San Diego have averaged just 4% over the past five years. The rate had not exceeded 5% for more than 15 consecutive years before the current supply cycle. That is, by all means, no accident. It rather reflects the market’s consistent inability to build enough housing to satisfy demand.
Yes, the 2024–2025 construction surge (which delivered a 25-year high in apartment units) pushed vacancy temporarily higher. As of late 2025, overall vacancy sits around 5.4%, with luxury Class A assets carrying the highest exposure at over 10% in some submarkets. But Class B assets, where most investors and property owners operate, continue to see tighter conditions and more durable fundamentals.
Construction is already tapering. The pipeline that pressured the market in 2024 and 2025 is contracting, with units under construction down 22% year-over-year as of Q4 2025. Once deliveries return closer to historical norms (expected through 2026 and into 2027), vacancy should stabilize, and rent growth should begin to recover. The long-term rent growth average for this market is 3.1% annually; the current 0% to slightly negative environment is a cycle, not a permanent reset.
What This Means for Investors
Owners who hold through the current supply cycle and manage their assets well. Keeping units occupied, controlling operating costs, and maintaining tenant relationships, to name a few, are assets positioned to benefit when the market rebalances. Panic selling into a temporary trough rarely produces better outcomes than disciplined management through it.
4. Homeownership Is Increasingly Out of Reach, Which Sustains Renter Demand
San Diego County’s median home price sits at approximately $1,050,000 as of early 2026. The average household needs to devote more than 51% of monthly income to principal and interest on a typical mortgage… the third highest of any metro in the country. Buyers need to earn close to $220,000 annually just to qualify for a median-priced home.
That affordability ceiling is not closing or decreasing. Mortgage rates remain in the 6% to 6.8% range, and while gradual easing is expected through 2026, the scale of price appreciation over the past decade (San Diego rents increased 57% over 10 years compared to 40% nationally) means that the gap between owning and renting is structurally wide. For most residents, renting is not a preference; it is a financial reality, and one’s only option.
This is the renter demand engine that underlies every multifamily investment in San Diego. When homeownership is inaccessible at scale, multifamily owners hold a durable asset in a market where their customer base is not discretionary. Renters need to live somewhere, and in San Diego, that means the apartment market absorbs sustained demand regardless of economic fluctuation.
5. Investment Activity Is Recovering, and the Next Cycle Is Already Forming
After hitting a cyclical low in early 2024, when only 40 market-rate properties traded, well below the pre-pandemic average of 140, San Diego’s multifamily investment market has significantly accelerated. Over the 12 months through mid-2025, more than $3.2 billion in assets changed hands, exceeding the decade average of $2.9 billion.
Cap rates have held stable at approximately 4.5% for three consecutive years, and institutional buyers remain active, particularly in suburban locations near employment centers and in Class A coastal assets where pricing has adjusted. The failure of a proposed rent control ballot measure in late 2024 improved investor sentiment by removing a significant regulatory risk from the underwriting conversation.
The pace of multifamily sales in San Diego is forecast to continue rising in 2026. Deal activity is accelerating as buyers recognize that the current cycle, with some softening in pricing, particularly in Class B assets where the median price per unit has adjusted, represents a more favorable entry point than the frenzied conditions of 2021 and 2022. Investors who acted during prior cycles of uncertainty and held quality assets through the recovery have consistently been rewarded in this market.
What Comes Next: The Little Window Between Supply Peak and Recovery
The current cycle has a defined arc. To put it bluntly, the construction surge that began in 2023 is tapering. Deliveries are declining. The pipeline is contracting. Once the new supply normalizes (most forecasts place that point in 2026 and into 2027), vacancy should stabilize, concessions should pull back, and rent growth should begin returning toward its long-term average.
The investors who will benefit most from that recovery are the ones managing their assets well right now. That means keeping occupancy high, controlling operating costs, maintaining tenant relationships that drive renewals, and staying vigilant and compliant with California’s evolving landlord-tenant regulations. The fundamentals of active, owner-minded property management are what separate assets that hold value through a cycle from those that erode.
San Diego has appreciated in nine of the last ten years. It has not crashed. It has not structurally oversupplied. It has absorbed every cycle it has encountered because geography, demographics, and economic diversification create a floor beneath the market that does not exist in the same way elsewhere.
Managing the Right Way in a Market Like This
For multifamily owners in San Diego, the current environment rewards active, experienced management more than it rewards passive ownership. The difference between a property that navigates this cycle well and one that struggles often comes down to how it’s being run.
At Mendes Company, we’ve managed over 1,300 units across San Diego County for more than 18 years. We know this market across its cycles–the tightening, the supply surges, and the recoveries. Our approach is simple: manage every asset as if we own it, which means proactive decisions, transparent reporting, and cost control that protects your NOI regardless of where the market is in any given quarter. Whether you’re an investor looking for a partner to maximize performance through this cycle, a trustee managing inherited assets, or an out-of-state owner who wants professional oversight without the day-to-day complexity, we’re built to serve exactly that kind of client.
Ready to talk about your portfolio? Contact our team or explore our property management services and brokerage division to learn how we can support your long-term investment goals.
*Disclaimer: Mendes Company provides property management services and does not offer formal tax or legal advice. Always consult with a qualified tax professional or CPA regarding your specific tax situation and eligible operating expenses deductible for landlords.