According to The February 2026 Northmarq report, San Diego’s multifamily market is entering a stabilization phase following a record-breaking year for new construction. While high supply recently pressured operating conditions, inventory growth is projected to cool through 2026.

Key Market Trends

• Inventory Peak & Decline: 2025 was a peak year for deliveries, with roughly 6,400 units coming online—a 52% increase from 2024. While the construction pipeline remains active, new deliveries are forecast to taper off in the coming years.
  
• Vacancy & Rent Adjustments: The surge in supply led to higher vacancy rates and a 1.9% decline in asking rents during 2025. However, San Diego remains historically resilient, and the gap between demand and supply is expected to narrow as inventory growth returns to historical norms.
• Investment Activity: Sales volume is recovering from the lows of 2023. Transaction counts in 2025 were 13% higher than the previous year, though they still sit about 21% below pre-pandemic averages (2015–2019).
  
• Cap Rates: Cap rates remained remarkably steady throughout 2025, hovering between the low-4% and low-5% range (averaging around 4.5%). No significant shifts are expected for 2026.
  

Submarket Highlights

• Chula Vista: This area saw the highest share of new units and a 10-basis-point increase in vacancy. Despite this, it remains a "hot spot" with the median price per unit rising 38% to $409,500.
• South I-15 Corridor: The median sale price rose by 17%, largely driven by high-end luxury sales in the Mount Carmel area.
• Downtown San Diego: Expected to regain its position as one of the most active submarkets for investment in 2026.
  

2026 Outlook
Northmarq predicts that while renter demand will initially lag behind the remaining peak supply, the market will rebalance as construction slows. Sales velocity is expected to continue its upward trend, potentially reaching pre-2020 levels by 2027. Once inventory growth stabilizes, vacancy rates are expected to flatten, allowing rent growth to resume.