Report: With Some Recent Reprieve in Rent Growth, The Market Seems Poised for a Reversal

Bay Area, Behavioral Sciences Future of Work Forum, San Francisco, Corporate Office Spaces

By Michele Chandler

While San Francisco’s rental market remains one of the costliest in the nation—heavily fueled by the hot tech industry—the city posted a rent decline in July 2017 compared to July 2016, according to a recent industry report.

Rents in San Francisco slipped 1.3 percent during the period, but still registered an average of rent rate of $3,439, according to RENTCafe.com, which is owned by Yardi, a Santa Barbara-based real estate investment and property management firm.

“Right now, ‘landlock’ is the problem with San Francisco,” said Doug Ressler, director of business intelligence at RENTCafe.com owner Yardi-Matrix. “There’s not a lot of available land to build new inventory. But, at the same time, the occupancy rates are beginning to decline because people are looking for alternatives, and they’re looking” elsewhere in the Bay Area.

In what he called a “daisy chain,” renters from the Bay Area have migrated to the less expensive western Sacramento suburbs in response to stagnant salaries and access to rapid transit systems connecting the two communities.

“Even for Silicon Valley and the ‘tech belt,’ salaries and wages have not kept track” with the cost of rental housing, he said. That means workers are now paying on average 44 percent of their monthly income for housing, up from 36 percent in 2014, Ressler said.

However, as RENTCafe.com’s report indicates, with the supply of apartments in San Francisco down 48 percent year-over-year coupled with the city’s job market continued expansion, “rents may start climbing again.”

The North Bay used to be the place to go to for tenants looking for cheaper lifestyles, but RENTCafe.com said that distinction may not hold true much longer, as the city of Santa Rosa has posted the greatest rent growth in the entire Bay Area. Santa Rosa’s average rent rose 8.2 percent to an average rent rate of $1,834, the study found.

Other Bay Area cities where apartment rents have steadily climbed include Fairfield, which posted a 7.3 percent rise to average rents of $1,644. The East Bay city of Concord reported a rise of 4.5 percent with average rents hitting $1,891, the study said.

Hayward rents were up 3.7 percent, to $2,056, while Fremont saw a modest 0.9 percent rise, to $2,361 average rents. Rents in San Mateo were up 1.5 percent, climbing to $3,059, the study said.

“What’s propelling and benefitting those areas is the fact that there is no alternative right now. It’s one of simply supply and demand,” said Ressler. “There’s a little bit of newer supply coming on board, but not a lot,” he said. That means that in the near-term, “rents are going to continue to grow in that area.”

The report found that Oakland has finally exited the list of cities where rents had dropped each month since the start of this year. With 600 new units expected in 2017, rents in Oakland remained essentially flat in July, at 0.3 percent, or $2,484.

In the South Bay, rents in Santa Clara were up 1.7 percent, to $2,766, the study found.

For the most part, San Jose—with approx. 2,100 new units delivered last year and 1,700 on track to be completed in 2017—has kept supply and demand in balance, as rents inched up 2.2 percent year over year, to an average of $2,660.

San Jose rents could be poised to rise further, now that tech giant Google has entered talks with the city to build up to six million square feet of office and retail development on the western edge of downtown near San Jose Diridon Station.

By July 2018, Ressler said, San Jose rentals could experience rise of a 3.0 percent or 3.5 percent in the central business core.

Overall, he said, the group is seeing higher residential and commercial rents in areas that are closer to rapid transit stations, especially in San Francisco.

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