Sunshine may not be San Diego’s best calling card these days. The metro, after suffering a downturn in fundamentals brought on by overbuilding, particularly in the single-family sector, is poised to outperform much of the rest of the country this year. In fact, the metro has risen to No. 2 on Marcus & Millichap’s National Apartment Index, which ranks 44 markets based on a series of 12-month, forward-looking supply and demand indicators, including forecast employment change, vacancy, construction, housing affordability, and rents.

In San Diego, excess housing inventory is burning off, homeownership rates are receding, and Echo Boom demographics are favorable. Overall, with additions to supply remaining modest and payrolls expanding for the first time since 2007, San Diego is expected to post a low overall vacancy rate and relatively steady rents in 2010.

Jobs Jolt

Employment trends in San Diego offer insight into the market’s expected upswing this year. Since employment levels peaked in mid-2007, the metro has shed more than 73,000 positions, a 5.6 percent decline. But in 2010, employment growth, which is expected to increase about 1 percent, will outperform the national rate.

The growing government sector will drive up metro-wide employment with the forecast addition of 12,500 jobs. Professional and business services as well as financial activities will be strong performers, adding approximately 5,000 workers in 2010. Education and health services sectors will add 2,800 jobs after losses last year. Additionally, the leisure and hospitality sector is forecast to add 2,500 jobs this year as the economic recovery gains momentum and both leisure and business travel slowly increases.

Changing Metrics

As employment growth helps to stabilize renter demand, multifamily metrics and fundamentals will subsequently stabilize or improve. In addition, the USS Carl Vinson is scheduled to rejoin the Pacific Fleet in 2010, returning thousands of relocated families to the metro and providing a boost to rental housing demand.