Downtown Real Estate: Slower, But Steady
by Ryan Thomas
photography by Vincent Knakal

There has been a murmur in the press lately, that downtown San Diego’s real estate is no longer the sizzling hot commodity it was last year. Petco Park is in full swing, development has settled into a groove, and if anybody is mentioning downtown these days, it’s generally in relation to the fiasco at City Hall.

But the truth, according to some downtown real estate agents, is that while speculation points toward a lull, downtown housing prices are right about where they should be: the market is stabilizing. But that doesn’t mean prices aren’t still rising, or that condos aren’t still being built — a trip downtown these days yields a skyline made of cranes. It just means that prices are rising slower, and properties are staying on the market a bit longer.

“Right now, there’s more inventory and market times are longer,” says David Oleary, president and broker of San Diego Shores Realty in Little Italy. “But there really hasn’t been a price drop of any significance.”

Oleary suggests that the abundance of inventory is related to the season, and to the fact that interest rates have gone up. On top of that, he says, the so-called “flippers”— people who buy solely for the purpose of reselling and making a profit — have not been as active, perhaps as a reaction to what they have been reading in the papers, leaving buyers looking for primary or secondary residences to comprise the bulk of demand.

“[Speculators are] reading that we’re hitting a peak, and they don’t want to buy high. It’s the same as any market. But they’re a small demographic of who’s buying real estate in San Diego. Now, the people who want longer-term homes are buying.”

Ron Duster, an agent with Prudential who operates downtownduster.com on 5th Avenue, says that unfounded negative press is influencing the market. But the market, he confirms, shows no signs of being a bust.

“The press is causing hardships right now,” he says, “because current sales are not as fast as last year when there was hysteria in the market. But sales are still happening in downtown. I’m involved in two contracts right now. One has three offers and the other has two. People made huge amounts of money flipping, but now we are dealing with people who want to stay and live downtown.”

According to Oleary, the average 1,000-square-foot condo is selling for around $600,000. Around this time last year, the same property would have sold for about $553,000, an increase of almost $50,000. But he adds that location affects pricing. The building his firm utilizes in Little Italy is selling two-bedroom units for $285,000, a price that is low and manageable compared to what media coverage is reporting. And while the average time on the market has increased from 40 to 90 days, the number of units selling has doubled. Only 11 units sold last September, which Oleary admits is a low number. As of last month, there were 23 units in escrow.

Duster’s numbers support Oleary’s statistics, citing that from June to September of last year, 174 units were in closed escrow. The same timeframe this year points to 200 units sold. “I don’t show any proof the bust is happening downtown,” he says. “These numbers prove it’s not happening.”

If the market can slow down, the big question is will it speed up again? Much of that depends on how much demand there is to live downtown. For now, many of the units are selling to a young demographic, as is expected from an urban setting. But Oleary points out that there is an oft glanced over demographic emerging downtown, the retiree. “Downtown has its young crowd, but downtown is also for people whose kids are out of the house. They’re ready to get back out of the ’burbs and move someplace more condensed, where it’s easier to get around.”

Duster mentions that higher-income professionals are becoming interested in buying second homes — or first high-rise condos depending on how you look at it — in the downtown area. He is currently working with two clients who are taking the equity from their suburban homes and putting it into new property downtown.

“People realize they don’t need all the space of North County. They want to be part of what’s going on downtown. One of my clients is transferring to a downtown office and it just makes sense to get a place nearby.”

The number of development projects in the area indicate downtown will only continue to increase in scope and offerings, which should attract buyers. According to the Center City Development Corporation’s (CCDC) Web site, which lists and tracks development downtown, some 94 projects are currently in both development and pre-development phases. Most of these are condos and offices, or some form of both, but some of these projects include amenities such as the Tweet Street Park, the new Main Library, the Children’s Museum Park, and the Park to Bay Bridge, which will link Balboa Park to the San Diego Bay.

University of San Diego professor of economics Alan Gin, an affiliated member of the Burnham-Moores Center for Real Estate, cautions that downtown may actually be overdeveloping, and that too many units may be the biggest threat to future of the downtown market. “That’s a lot of building that’s going on. So far, people who have developed down there have done well, but I wonder how big the market is for the downtown lifestyle. If the supply outweighs the demand, it could have a depressing effect on what you buy.”

Whether any of these new high rises or amenities will attract one of the most popular home buying demographics, the nuclear family, remains to be seen.

“They are trying to have more facilities for children and folks who want to raise a family,” says Oleary.

“There are schools downtown, and stuff to do, but it’s a different lifestyle than for a child growing up in the suburbs. If you want a big enough home downtown to raise kids, you need to fork over more money. Who wants to raise family in a studio?”

Commercial development might equal job growth, which would also raise demand in the market, but thoughts on this point differ. According to Gin, “Downtown doesn’t really have the big corporations like you see in New York City. I don’t know the statistics on job growth, but I don’t see the development affecting the economy to a point where everyone is rushing to live there.”

But both Oleary and Duster point out that in the face of rising gas prices, downtown’s mass transit system and the ability to walk to work and amenities should help spur future demand.

“Over the next few years, we’re going to start seeing people going to vertical living due to the price of fuel going up,” says Oleary. “If you can live, work, and play downtown, and can walk or take a cab for a couple bucks, that’s cheaper and it’s going to be advantageous.”

Gin, however, remains somewhat doubtful that the surge of recent years will ever return. “I think we’re seeing the market stabilizing, and it’ll flatten out for a long time.”

A report by Money Magazine in June showed that San Diego should experience an average 138 percent increase in home values over the next five years. Some may say that’s generous, but whatever the future holds, the downtown market shows no sign of busting any time soon.

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