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Within the South Bay market, downtown San Jose and the I-280 corridor are highly desirable. But North First Street, situated near public transportation and a host of employers such as Cisco, is in the midst of a particularly strong building boom. More than 8,000 units are coming to market in the next three-to-four-year period.[contextly_sidebar id=”189186862c73bb3823fb426f5d6a91dc”]Projects nearing completion could not be entering the market at a better time. And other projects that were delivered in the midst of the downturn are changing strategies, reflecting the swings in consumer preference. For example, Skyline at Tamien Station was delivered in 2008 as a condominium project with 121 units. “The owners agreed to rent instead of sell, opting for income,” Zeger explained. But last month the property went back on the market as condos, with units selling from $380 to $624 per square foot.
“When you look at the math, renters in the neighborhood are paying in rent what they could buy for the same price per month,” Zeger said. While record levels of non-mortgage debt and stringent credit requirements are keeping demand for rental units high, historically low interest rates are also compelling renters to weigh the benefits of becoming a homeowner.
Builders have paid attention. “They are loading up for-sale business and pipeline,” Seligman said. “Public builders or private builders have been very aggressive in land purchase. In many cases, in the last 18 months, for-sale developers are outpacing and out-paying the apartment builders for land.”
Construction is picking up steam, but the pace of roughly 1,000 total multifamily apartment completions in 2013 is still half of the totals in 2004 or 2007. Completions will gain momentum in 2014; how the market will respond is unclear.
“If the federal government screws things up and we go sideways, demand would not be so robust,” Seligman admitted. “If the economy is in good shape, prices stabilize, it reduces upward pressure, but doesn’t cause a downward spiral.”
Offering the analogy of the python swallowing the pig, he adds, “The answer is probably somewhere in between. San Jose could very easily absorb this. Those at the end of the snake, if you will, are hoping things continue to grow. Those at the front are confident that they’ll get absorbed quickly.”
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