New Apartment Construction Thin

By Sharon Simonson

A year ago, parents were unwilling to help pay apartment rents for adult children even if only to get them out of the house. This year, they are. So says Ron Granville, chief executive officer of Belmont-based Woodmont Real Estate Services, a huge Northern California-focused property manager.

The anecdote, while unscientific, illustrates perfectly the return to tentative confidence evident across financial and other markets, affecting, in this case, the health of regional apartment communities.

Granville spoke June 9 as a panelist for the eighth-annual Multifamily Trends Conference in San Francisco’s Moscone Center. His comments were part of a forecast prepared for participants looking at West Coast markets from Seattle to Southern California.

After the financial crisis and through 2009, the company stopped a campaign to renovate apartment units in its generally older properties because renters would not support the investment. In the last several months, that ethos has changed. “People are willing to pay more for value, and they will support renovation costs,” he said.

In San Mateo County, “We are surprised how good the market was in the first five months of the year,” Granville said. Occupancy rates are 95 percent or better with no concessions and real rent growth. New supply is limited, and while new jobs are not yet materializing, he expects that to change. Baseline requirements in today’s rental market are good-quality Internet and cable television packages. Without that, “you are in trouble,” he said.

He is less sanguine about San Francisco, Granville said. The political environment in the city is highly unpredictable but exceptionally relevant because so much of the population rents and tenant-rights groups are active. Broader rent controls have been discussed, he said. In the East Bay, Fremont is the softest market in the Bay Area.

According to projections from Marcus & Millichap Real Estate Investment Services, rent and occupancy-rate recovery in San Francisco and San Jose will be steady if slight this year as both economies add jobs after two years of employment losses. San Francisco is expected to add 5,000 new jobs in 2010 and San Jose 4,500, Marcus said. Oakland is projected to experience slight job losses for a third year running.

Nationally, permits for new construction of multifamily units have dropped precipitously, said Ronald Johnsey, president of Dallas-based apartment market tracker and forecaster Axiometrics Inc. That dearth of new production could augur rental spikes over the next decade, he postulated.

Marcus projects a slight increase in new-unit completions in all three Bay Area major metropolitan markets in 2010. San Jose is expected to see 250 new units this year, up from no completions last year. San Francisco completions will rise to 625 in 2010, up from 452 last year and 281 in the year before. Oakland is to add 760 new units, down from 1,250 units added in 2009 and more than 2,000 in 2008.

Across the nine-county Bay Area, multifamily and single-family home production has plummeted, according to building-permit data gathered by the Construction Industry Research Board. In 2006, nearly 14,000 multifamily units were permitted, including apartments, duplexes, triplexes and quadraplexes as well as some condominiums. That dropped to fewer than 2,000 last year.

In the first four months of this year, multifamily production in the region has climbed to nearly 1,000 permitted units. That’s up about 100 units over permit activity in the same time in 2008.

West Coast Commercial Real Estate News