San Diego Rental Vacancy Hits 15-Year High: Landlords Face Cash Flow Crisis

From Historic Shortage to Oversupply: Understanding the Market Reversal

The transformation of San Diego's rental market has been swift and severe. In 2021, at the height of the pandemic-era housing boom, San Diego County's rental vacancy rate stood at just 2.64%—one of the tightest rental markets in the region's history. Landlords enjoyed unprecedented pricing power, with rents increasing by double digits in 2022, including a 13% surge that reflected the acute housing shortage.

What changed? A massive apartment construction boom across the San Diego region, with multiple large and small projects opening simultaneously. According to CBS8, about 4,700 new apartment units entered the construction pipeline for the San Diego metro in 2025. When hundreds of these units opened at the same time across submarkets like Downtown San Diego, the South I-15 Corridor, and other areas, supply overwhelmed demand.

The result: by late 2025, the vacancy rate had more than doubled from the 2021 low, reaching 5.7%. This represents the highest vacancy level since 2009, during the depths of the Great Recession. For landlords who purchased properties expecting the tight market conditions of 2021-2022 to continue, this reversal has proven financially devastating.

Geographic Breakdown: Where Vacancy Hits Hardest

The impact of rising vacancies varies significantly across San Diego County, with some submarkets experiencing acute distress while others remain relatively stable. Understanding these geographic variations is crucial for landlords evaluating their exit options and cash buyers seeking acquisition opportunities.

Downtown San Diego faces the most severe distress, with vacancy rates reaching between 10% and 11.2% depending on the specific neighborhood. According to CRE Daily, luxury apartment buildings in downtown areas are offering up to 2 months of free rent as concessions to attract tenants. Average rents in downtown have fallen to $2,087 per month in some areas, representing a 1.4% annual decline—the steepest in the county.

The South I-15 Corridor shows slightly better metrics but still faces significant pressure, with rents at $2,986 to $3,017 per month declining 1.2% annually. However, this corridor maintains the county's lowest vacancy rate at 4.3%, indicating stronger underlying demand than other areas.

National City and Escondido buck the countywide trend, with rents actually increasing by 0.6% and 1.5% respectively. These submarkets benefit from more affordable price points that attract renters priced out of coastal areas. Escondido is expected to see a 66% increase in new apartment construction compared to the last five years, potentially changing this dynamic.

Why This Matters: The Landlord Cash Flow Crisis

For rental property owners, particularly those who purchased during the 2020-2022 appreciation surge, the combination of rising vacancies and declining rents has created a perfect storm. Many landlords who bought at peak prices with tight capitalization rates now face negative leverage scenarios where mortgage payments exceed rental income.

Consider the typical financial profile of a landlord who purchased a downtown San Diego rental property in 2022:

With average downtown rents now at $2,087 per month and a 10% vacancy rate, the cash flow calculation looks dire:

• Expected annual rent: $2,087 × 12 = $25,044
• Minus 10% vacancy loss: -$2,504
• Net rental income: $22,540
• Annual expenses: $4,812 × 12 = $57,744
• Annual cash flow deficit: -$35,204

This landlord is losing nearly $3,000 per month—$35,204 annually—simply by holding the property. Each month of continued ownership erodes the equity built up during the down payment and any appreciation since purchase.

The situation worsens for landlords who need to offer concessions. According to CRE Daily, many downtown luxury properties are offering 2 months of free rent, effectively reducing annual rental income by 16.7%. For the example above, this would increase the annual deficit to over $40,000.

The Concession Spiral: When Landlords Compete on Price

As vacancies have climbed, landlords across San Diego County have increasingly turned to concessions to attract and retain tenants. The San Diego Union-Tribune reports that property management consultants are advising landlords to offer concessions because "it is still cheaper than leaving an apartment empty for a few months."

While these concessions can help fill units faster, they further erode already-thin profit margins. A landlord offering 2 months of free rent on a 12-month lease effectively reduces the monthly rent by 16.7%. On a $3,000/month unit, this represents a $6,000 income loss—money that must be absorbed by the property owner.

For landlords already facing negative cash flow, concessions accelerate the equity drain. Many find themselves in a no-win situation: offer concessions and lose money faster, or maintain asking rents and watch the property sit vacant while still paying mortgage, taxes, insurance, and maintenance.

CoStar Forecast: No Relief in Sight Through 2026

The most sobering aspect of San Diego's rental crisis is the forecast. CoStar senior director Joshua Ohl stated he "does not expect significant changes and believes the current trends will continue into next year." This projection of continued vacancy pressure and rent stagnation through 2026 has significant implications for distressed landlords.

Several factors support this pessimistic outlook:

• Continued construction pipeline: According to CBS8, approximately 4,700 new apartment units remain in the construction pipeline for 2025. Many of these units will deliver in early 2026, adding further supply pressure.
• Escondido expansion: Escondido expects a 66% increase in new apartment construction compared to the last five years, potentially flooding this previously stable submarket with excess inventory.
• Mortgage rate environment: With mortgage rates remaining elevated in the 6-7% range, potential first-time homebuyers remain stuck in the rental market, but this hasn't translated to higher rents due to oversupply.
• Economic uncertainty: Tech sector layoffs and economic headwinds in California create tenant caution, with many renters downsizing or seeking more affordable options rather than upgrading to luxury units.

For landlords evaluating their options, this forecast suggests that "waiting it out" may result in 12-24 months of continued monthly losses—potentially $40,000 to $80,000 in cumulative deficits before market conditions stabilize.

How Cash Buyers Provide an Exit Strategy

For landlords trapped in negative cash flow, traditional sale methods create additional challenges. The typical San Diego home takes approximately 82 days to sell through conventional channels, during which the property owner continues to absorb monthly losses. Add in the costs of staging, repairs, and potential buyer financing contingencies, and the timeline and expense can become prohibitive.

Cash home buyers offer a fundamentally different exit strategy optimized for speed and certainty:

Companies like SoCal Home Buyers and I Buy SD can close in as little as 7 days, immediately stopping the monthly cash flow hemorrhage. For a landlord losing $3,000 per month, this speed advantage saves $6,000 to $24,000 compared to traditional 60-90 day sale timelines.

SoCal Home Buyers specifically advertises buying tenant-occupied homes, even with lease violations or eviction delays. This eliminates the need for costly and time-consuming eviction proceedings before listing.

The trade-off, of course, is price. Cash buyers typically offer 70-75% of market value. However, for a landlord facing $35,000 in annual losses, the calculation becomes straightforward. On a $775,000 property:

While the cash offer appears $125,000 lower initially, the actual net proceeds difference is only $124,750 after accounting for commissions, repairs, and holding costs. More importantly, the cash sale stops the monthly bleeding immediately, preserving equity that would otherwise erode over the 3-6 month traditional sale period.

For landlords facing 12-24 months of continued market pressure per CoStar's forecast, the math becomes even more compelling. Continuing to hold a property losing $3,000 monthly for another year costs $36,000—significantly narrowing or eliminating the gap between sale methods.

Frequently Asked Questions: San Diego Rental Vacancy Crisis

Conclusion: Exit Strategy for San Diego's Rental Market Reversal

San Diego County's rental market reversal from 2.64% vacancy in 2021 to 5.7% in late 2025 has created a financial crisis for leveraged landlords. With downtown vacancy at 10-11.2%, rents declining for six consecutive months, and CoStar forecasting continued pressure through 2026, many property owners face difficult decisions about whether to continue absorbing monthly losses or exit through strategic sale.

For landlords losing $2,000-$3,000 monthly with limited reserves, cash home buyers offer an immediate exit that stops the bleeding. While cash offers typically range from 70-75% of market value, the 7-14 day closing timeline, elimination of repair costs, and ability to sell tenant-occupied properties create compelling economics compared to traditional sales that take 60-90 days while losses continue.

Understanding the geographic variations in San Diego's rental crisis is crucial. Downtown San Diego's 11.2% luxury vacancy creates the most acute distress, while National City and Escondido show relative strength with positive rent growth. Landlords evaluating exit options should consider submarket-specific dynamics, their financial capacity to absorb extended losses, and the opportunity cost of capital tied up in underperforming rental properties.

Whether you choose to hold through the downturn or pursue a strategic exit through cash sale, acting with full awareness of market fundamentals—rather than hoping for a quick recovery—will protect your equity and financial stability through 2026.