By Jacob Bourne
Ryan Wagner, multifamily broker and senior vice president at Colliers International, and his colleagues, compiled Q3 data on Class A apartment rents within a 0.25 radius of major transit hubs to determine what kind of premiums people are willing to pay to live in these prime locations. The data was based on rental units built within the last 10 years or renovated to a high degree. Transit hubs included BART, Caltrain, Ferry Terminal and ACE Stations with heavy commuter counts.[contextly_sidebar id=”DOWMlhFDNqa23mjSdyuzHCeNoFUU674M”]“High rents will continue to push renters out to secondary markets,” explained Wagner. “People are going to be willing to spend more time on BART or Caltrain. People will continue to flee top-tier markets to go to secondary markets to pay less for the same product. That will drive growth.”
With rents around San Francisco’s Embarcadero Station at $4.60 per square foot per month compared to Pittsburgh’s $1.70 per square foot, the researchers clearly found a high price to be paid for central live-work locations. There’s a close relationship between apartment rents and nearby asking office rents, with areas further away from job centers tending to have more affordable homes. For example, Embarcadero office rents go for $80 per square foot per year, while in Walnut Creek the average is much lower at $36. Walnut Creek’s corresponding apartment rents hover at $3.31.
Over the past year there has been a leveling off of the extreme rent growth seen over the course of the prior four years, which has especially affected the top-tier areas such as the Embarcadero and Redwood City, a Peninsula city with a baby bullet station in its downtown core. However, the difference between rents in the major hubs to rents in outlying areas remains a significant driver for those wanting to pay less for similar products.
“In San Francisco asking rents for Class A dropped by about 3 percent since October of last year, somewhat due to a glut of new product hitting the market in places like Mission Bay where some buildings are offering units with the first month rent-free,” said Wagner. “Central Silicon Valley, San Francisco and Southern Marin rents for all Class A apartments have been flat or down over the last 12 months, whereas in a lot of markets like Daly City, South San Francisco and pockets in the Easy Bay, there’s still room to grow because of the gap between rents in those areas and San Francisco.”
Another factor limiting growth in top-tier areas is that people seem to hit their rent threshold when prices approach the $4.50 benchmark, pushing these renters towards homeownership. Wagner cited Palo Alto’s $5.58 rents as the region’s anomaly. He predicts that even if San Francisco rents were to drop by 5 percent, places like Oakland’s Lake Merritt will still be in high demand for renters interested in saving money at the cost of a BART ride to work.
“Many describe the Bay Area economy as a boom and bust market, when in reality we are riding a series of waves,” Wagner commented. “I believe we are towards the earlier stages of a reasonable correction, and given the strength and longevity of this current expansion, that is a good thing.”