Understanding the Market
Commercial real estate investment activity across the U.S. has slowed dramatically over the past few years. Investment volume remains down roughly 50% from 2021 highs, reflecting a cautious environment where investors are waiting for rate clarity and better alignment between buyer and seller expectations.
But behind the slowdown, a clear trend is taking shape. Investors are performing a flight to quality: targeting stronger markets, stabilized opportunities, and high-quality assets that provide durability and lower volatility.
What does a Flight to Quality Mean
The phrase flight to quality is a consistent behavior observed across all investment classes during uncertain times. When risk rises, capital seeks safety.
In equities, investors move from small-cap stocks into blue-chip names.
In bonds, they move from high-yield corporate debt into U.S. Treasuries.
And in real estate, capital shifts from speculative secondary markets to core markets like San Diego, Austin, and Miami, where long-term demand and liquidity remain strong.
With the cost of capital at high rates, investors are focusing on markets where they can rely on certainty. Markets with growing populations, strong employment, and constrained supply.
The Market Today
Core coastal markets are holding firm, while tertiary regions that boomed in 2021–2022 are now facing stagnation. Transaction volume is down, but rental growth and absorption have returned in select high-barrier metros.
In San Diego, we’re seeing a similar divergence. Neighborhoods such as North Park, Hillcrest, Golden Hill, and Mission Valley are facing short-term softness, largely due to a surge of new apartment supply.
From 2001-2015 the composition of units being built in San Diego were:
- Studios: 6%
- 1 Beds: 35%
- 2 Beds: 46%
- 3 Beds: 12%
- 4+ Beds: <1%
From 2020 - Today, the composition in San Diego is:
- Studios: 15%
- 1 Beds: 44%
- 2 Beds: 33%
- 3 Beds: 7%
- 4+ Beds: <1%
As developers race to maximize density on expensive land, studio and one-bedroom units now dominate, but these smaller units take longer to lease and experience more turnover. In contrast, properties with balanced unit mixes, particularly two- and three-bedrooms, are trading at premiums due to stronger retention and diversified tenant demand.
How Investors Are Reacting
Investors today are less concerned with chasing high yields and more focused on buying quality at value.
Many of our clients at CCG are performing 1031 Exchanges or reevaluating how their assets are performing for their portfolio, targeting assets trading below replacement cost in premium neighborhoods. They’re looking for opportunities to acquire discounted assets before cap rate compression resumes as the Fed continues cutting rates.
As our Q4 2025 CCG Market Outlook noted, “Value will come from buying below replacement cost, solving problems, andstructuring intelligently. For long-term investors, this reset is an opportunity"
San Diego’s Long-Term Advantage
San Diego continues to outperform due to its limited supply, steady job base, and coastal desirability. Unlike many U.S. metros, it has built-in scarcity: zoning restrictions, slow entitlements, and limited developable land act as long-term stabilizers.
Yes, we’re seeing temporary oversupply in urban infill areas. But for long-term holders, these short windows of price adjustment are rare. As interest rates decline and capital re-enters the market, today’s pricing will likely look cheap in hindsight.
If you’re buying in San Diego expecting outsized cash flow, you’re playing the wrong game. This is an equity-growth market and the best returns go to investors who think long term.
See Where Smart Money Is Moving
From stabilized Class A deals to value-add repositioning plays, our CCG Q4 2025 Outlook reveals the data, direction, and strategies defining the next market cycle.
Discover which investors are winning and how you can too.
Sources and References
- PwC & ULI. Emerging Trends in Real Estate® – United States & Canada 2025.
- Deloitte. “2025 Commercial Real Estate Outlook.”
- CoStar. Multifamily National Outlook – Fall 2025.
- Federal Reserve Economic Data (FRED). “Effective Federal Funds Rate Trends.”
- NMHC (National Multifamily Housing Council). Development Pipeline Reports.
- CBRE. U.S. Real Estate Market Outlook 2025.
- CCG Real Estate Advisors. CCG Q4 2025 Market Outlook Report. (Internal publication)
