San Luis Obispo offers numerous features that make it an attractive area. It has a mild climate throughout the year, a strong university system filled with students and faculty that provide inelastic demand for local housing, an outdoor lifestyle stretching along the Central Coast and a vibrant cultural backdrop. Residents and tourists here are drawn to the quaint coastal towns from Avila Beach to Pismo Beach and historic cities such as Arroyo Grande. Those are filled with boutique shopping and restaurants, not to mention cultural and outdoor activities, and this area includes some of California's best vineyards in Paso Robles. Cal Poly is located here, which produces graduates for the local job market. More than 20,000 students are enrolled at the university, and the school provides beds for more than 8,000.
Net absorption has tallied about 220 units in the past 12 months compared to the 10-year average of 94 units. Demand has fared the worst in workforce housing in the past 12 months, tallying 0 units of absorption. Those households have been facing more economic stress. Conversely, 3 Star properties have tallied about 83 units of absorption due to new inventory in that category.
Midtier properties have seen stronger demand following the delivery of the 3 Star Harvest Lofts, which opened in South SLO in 2023. The 120-unit property has increased occupancy by roughly five units each month since opening with no concessions. Three Star properties have a vacancy rate of 6.3% compared with 18.1% in the luxury sector. Overall, vacancy is 7.4% compared to the 3.7% historical benchmark.
Vacancy has been highest in the North SLO Submarket, where new inventory in 2022 and 2023 has still not stabilized. Recent openings there increased inventory by nearly 10%.
The 4 Star 206-unit Emerald Ridge Apartments in Atascadero opened in North SLO in 2022. That sent the vacancy rate into double digits for the first time in more than 10 years and is largely responsible for the elevated vacancy in 4 & 5 Star properties. However, only a handful of the units have been delivered. CoStar's vacancy rate accounts for the full 206 units. With North vacancy already elevated, the 3 Star Arrive Paso Robles opened in mid-2023 with 200 units. It has offered a $200 monthly rebate to attract new renters.
There are roughly 330 units in the pipeline. Avila Ranch Apartments is underway in South SLO, and the 310-unit property is scheduled to open in 2025. Work has also begun on the 214-unit Reserve at Vinedo in Paso Robles. The $97 million development will include build-to-rent homes and is scheduled to open by the end of 2025. That will add an element of supply pressure once those homes begin delivering.
Rents have shifted by -0.5% year over year as of the second quarter. That compares to the average of 3.6% between 2015 and 2019 and to the national benchmark of 1.0%. South SLO, whose vacancy rate is about one-quarter of North SLO's, has outperformed the market during the past 12 months. Midtier properties in San Luis Obispo have seen rents shift by -1.7% year over year. Rent growth is anticipated to return above the long-term average by 2025.
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