Cushman & Wakefield Reports San Diego County Apartment Sales Continue to Decline
17 Sep, 2008, San Diego, CA
The volume of San Diego County apartment sales continues to decline, however the rate of decrease in sales prices is trailing behind the drop in sales, a just released Cushman & Wakefield report shows.
The 139 apartment sales transactions in the second quarter of 2008 were down 7.3 percent from 150 during the same period in 2007, the Cushman & Wakefield study shows. Additionally, the 231 year-to-date transactions are down 19.5 percent from 287 sales during the first six months of the prior year.
The downward trend in the number of units sold also prevails, consistent with the fact that fewer projects with 100 or more units are being transferred. For the three months ended June 30, 2008, 2,038 apartment units were transferred, a 31.5 percent decrease from 2,974 the same time a year ago. The 3,497 units sold during the first half of 2008 compares to 5,828 units sold for the six months ended June 30, 2007.
“We are seeing a significant market correction following record-high apartment sales volume in 2004 that was followed in 2005 by record-high pricing,” said George Carlson, associate director with Cushman & Wakefield.
“The disparity between high prices compared to what investors are willing to pay, not to mention the continuing effects of the sub-prime mortgage crisis, is prolonging the correction. This situation somewhat parallels that which occurred in the early 1990s when the savings and loan debacle exacerbated the slowdown initially caused by prices that spiked higher than demand warranted.”
Carlson notes, however, that there are some positive differences between that of the 1990s and today.
“In the 1990s, the supply side was overbuilt relative to demand – a scenario
that does not apply today, particularly in light of San Diego’s shrinking supply of land
as well as the lengthy and complicated approval processes for new projects,” he
said. “While our economy has slowed, its basic fundamentals of industry diversity
particularly in high-tech and biotech clusters, position our region for a strong future despite
the current blip. This in turn will create renewed demand for affordable for-rent housing in a
market where apartment vacancy is currently just 4 percent.”
The peak in average apartment per-unit sales prices of $177,000 in 2005 was followed by a 4 percent decline to $170,700 per unit during 2006, 7.5 percent drop to $157,900 per unit in 2007, for an 11 percent overall decline for 2006 and 2007. It’s noteworthy that adjusted year-end totals that factored out sales of major properties over 100 units that sold for $200,000 per unit or more dropped 17 percent during the same period. This compares with a 25 percent reduction from 1990-1992.
“The decline in pricing is expected to continue,” Carlson said. “Similar to the residential housing market, the apartment market is seeing an influx of foreclosed properties. Real Estate Owned (REO) properties will continue to impact pricing.”
Carlson added that once we see a consensus that the pricing expectations of sellers is once again in line with the purchase expectations of buyers, the market should begin to equalize. “Certainly, reaching stability in the capital markets will be a key factor in this process,” he said.
Major sales transactions of 100 or more units in the second quarter of 2008 were 113-unit Parkway Plaza Apartments in La Mesa which sold for $17,200,000, or $152,212 per unit; and the 140-unit La Cascada Apartments, in Vista, that sold for $13,000,000 or $92,857 per unit.
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