San Francisco’s expensive and ultracompetitive real estate market is pushing apartment renters, house hunters and investors to a resurgent Oakland.[contextly_sidebar id=”Rmje38ruBtFnmPwu1Sjhrvq04j2rLhiG”]“It’s making the Oakland product very affordable,” said Paul Zeger, a partner at San Francisco-based real estate sales and marketing firm Polaris Pacific.
A number of new residential projects are under way or in the pipeline in Oakland as the city’s rents and home prices surge due to the Bay Area’s ongoing economic boom that has made San Francisco and Silicon Valley among the hottest markets in the world. But compared to those two areas, Oakland offers a less costly yet still attractive alternative.
People are moving out of such San Francisco neighborhoods as trendy Hayes Valley and going across the bay where the restaurant, entertainment and cultural scenes are experiencing a revival—especially in Jack London Square and Uptown, Zeger said.
“In San Francisco, you can rent a one-bedroom apartment for $3,000 to $4,000 a month,” he said, but for the same monthly mortgage, “you can own a two-bedroom home in Oakland.”
According to real estate brokerage Redfin, the median home sales price in Oakland was $550,250 in June—a year-over-year growth of 3.8 percent. In contrast, the median price in San Francisco was $925,000—a growth of 12.8 percent—while it was $770,000 in San Jose where it saw a 10.8 percent increase.
Rents in the East Bay also are on the rise but remain way below San Francisco and South Bay rents. According to research by commercial real estate services firm Cassidy Turley, the average monthly rate in the East Bay jumped nearly 11 percent in the past year to $1,805. Average rents in San Francisco, however, are at $3,229 and in Santa Clara County $2,321—both rates representing an annual growth of more than 9 percent.
“The East Bay apartment market will perform well this year as demand remains high,” according to a report summary by commercial real estate services firm Marcus & Millichap. “After a surge in effective rents in San Francisco and the South Bay, apartment tenants sought the relatively affordable apartments near Oakland transit stops. As a result, vacancy has declined to a very low level, enabling local operators to be aggressive with rent hikes.”
The upside potential in the Oakland apartment market also is drawing investors to the area with rents expected “to advance further in the East Bay,” according to Marcus & Millichap’s report. “In addition, interest rates remain low and financing is available, buoying demand from buyers.”
The research from Cassidy Turley similarly pointed to a strong investor interest in the Oakland area, adding that the “East Bay development pipeline will grow substantially in the months ahead [although] it remains well behind the demand trend.”
Cassidy Turley is tracking more than 2,200 units now under construction in the East Bay, “but most of these will not be delivered before late 2015 at the earliest. As such, look for vacancy levels to remain extremely tight and for rental rate growth to remain aggressive.”
According to Oakland’s Economic and Workforce Development Department, the city has 52 residential projects under construction or in various stages of the approval process. The grandest of these is Brooklyn Basin, a 3,100-unit waterfront community development that broke ground earlier this year along the Oakland Estuary south of Jack London Square.
Brooklyn Basin will feature apartments, high-rise condominiums, live-work lofts and townhouses. Close to 500 units are slated to be affordable. The $1.5 billion project will also integrate retail space, parks and renovated marinas.
Other large projects include the 960-unit Oak Knoll redevelopment in the Oakland hills and the 624-unit MacArthur BART Transit Village in North Oakland.
“A bunch of neighborhoods are taking off in Oakland,” Zeger said. “You can see a bright future. “Over the next five to 10 years, Oakland will appreciate dramatically as it rebalances with San Francisco and tries to satisfy the demand in the Bay Area.”
Oakland will continue to have a diverse demographic, he said, “but “a great number of young people will move in. A lot of millennials will be in the mix.”
To its developer, the success of the high-rise luxury condo The Bond at Jack London Square points to the buying public’s willingness to move to Oakland, especially in an area filled with vibrant restaurants and other amenities.
According to a Polaris Pacific condo market report in September, The Bond averaged about $650,000 as the median price of new sales compared to the local median of $425,000. The highest-priced unit went for $1.1 million, or $882 per square foot.
“Oakland has finally arrived,” said Michael Reynolds, a principal at the Embarcadero Pacific Company, the developer of The Bond—which was built in 2009 and features 101 high-end units. “Oakland has new businesses, technology companies and a lot of retail corridors. It also has a lower cost to business entry” compared to San Francisco.