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Report: San Jose Earns #1 Spot on List of Nation's Top Tech Cities based on 6 Key Metrics

San Jose has been the heart of Silicon Valley’s tech scene for some time now. So it comes as no surprise that Cushman & Wakefield just named San Jose the #1 “tech city” in the country. But what’s interesting about their “TechCities 1.0” report, the first of what will become an annual publication, is the methodology used to make this determination. Here’s what landlords, San Jose property managers and prospective investors need to know about the report.

Cushman & Wakefield looked at six market drivers in an effort to distinguish tech cities across the U.S.

  1. Institutions of Higher Learning: leading universities that provide creative impetus, research, and that lead to the creation of new companies.
  2. Venture Capital: The capital needed to take those ideas and turn them into companies.
  3. Tech Workers: An ample supply of workers within a market’s tech industry, and leaders within the tech industry who understand the sector’s requirements.
  4. Knowledge Workers: An available workforce with the skills to work in a tech-focused company. These workers are in occupations that support tech, such as legal and accounting.
  5. Educated Workers: Educated workers are essential to supporting the growth of tech companies.
  6. Growth Entrepreneurship: There are many kinds of entrepreneurs and startups. Growth entrepreneurs stand out as companies that have the potential to become important contributors to local economies and to become mainstays of the local commercial real estate environment.
  7. These are the six ingredients that make up the “tech stew” needed to support, nurture and promote a strong tech ecosystem, according to Cushman & Wakefield.

Based on these metrics, San Jose performs incredibly well.

The San Jose metro area is home to six prominent institutions of higher learning, including Stanford and Santa Clara University.

  • In 2016, San Jose ranked third in the nation for venture capital funding, with $6.7bn in deals reported last year alone. Although this number is impressive, it is two-thirds of the venture capital that flowed to NYC () during that same time, and less than one-fourth of the venture capital that companies in San Francisco received ().
  • San Jose has the highest concentration of tech workers in the nation. Tech workers account for 27.4% of San Jose’s total nonfarm employment. This is by far one of San Jose’s greatest strengths, and represents almost double the concentration of the next best-performing city () based upon this metric.
  • San Jose also ranks #1 for its share of knowledge workers. More than 35% of San Jose’s workforce is employed in knowledge-based industries, such as computers and math; architecture and engineering; life, physical and social science; management; education; and healthcare.
  • San Jose ranks 5th in the nation as it pertains to share of workforce with a bachelor's’ degree or higher. This ranking looks worse than it is, but the ranking is somewhat deceiving. San Jose property managers, landlords and investors should know that the race to the top was a close one, with all top five cities coming in between 47% and 50%.
  • Among the top 25 tech cities in the nation, the average score on the Growth Entrepreneurship Index is 4.75. San Jose scores 8.0 on this index, third best in the nation behind only Washington D.C. and Austin, TX.

So, why does any of this matter to San Jose property managers, apartment owners or investors?Simply put: these metrics provide valuable insight as to the strength of San Jose’s economy. Since 2009, real estate markets in the “Tech 25” have outperformed markets across the U.S., and San Jose is leading the way. Employment growth, absorption rates, and rent growth are all higher in San Jose than in other metro areas, including the other tech cities – great news for landlords, San Jose property managers and prospective investors.Technology is present in all cities, “but certain cities stand out,” the report notes. “In these markets, tech plays a larger role in the city’s economic trajectory. It’s also a vibe. Certain cities have the tech feel in the air, on the signage, in the conversations at the bars, in its population’s habits and preoccupations. In certain cities, tech is more deeply woven into the fabric of the city itself, and it’s dramatically shaping those real estate markets.”Indeed, San Jose’s tech sector is driving the local economy (). Companies like Google, Apple, Cisco Systems and Intel have deep roots here in the community. As a result, San Jose property managers and apartment owners are able to command premium rents—something we don’t expect to change for quite some time. The TechCities 1.0 study is just the latest evidence to that effect.Landlords, San Jose property management companies, and prospective investors can find the entire Cushman & Wakefield “TechCities 1.0” report here.

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Rate of Millennial Homeownership in San Jose Among the Lowest in the Nation, Study Finds

Homeownership used to be a rite of passage for young people entering adulthood, but that seems to no longer be the case – at least in the San Jose area. A new study finds Millennial homeownership in San Jose is among the lowest in the nation.

Study Finds:

Millennials () are the now the largest generation of adults, and therefore the center of attention for the U.S. housing market. The oldest cohort of Millennials are starting to reach their early- and mid-30s, and at least theoretically, should be approaching financial stability and considering homeownership.But data shows that Millennial homeownership is on the decline. Some have even dubbed Millennials the “renter generation.” This is especially true in San Jose, where only 20.2% of Millennials have purchased their own homes. The San Jose-Sunnyvale-Santa Clara MSA () ranks fifth to last in the nation for Millennial homeownership, behind only Los Angeles (), Honolulu (), San Diego-Carlsbad () and New York-Newark ().San Jose stands out, though, for its stark drop in Millennial homeownership. Nowhere in the country has the rate of homeownership among 18- to 35-year-olds dropped faster over the past decade than in San Jose. Between 2005 and 2015 (), homeownership among young adults dropped by a staggering 34.5%There are a number of factors driving the decline in homeownership among San Jose Millennials. The most obvious is the cost of housing. The average home value of homes purchased by San Jose Millennials is a stunning $737,077. Although an astronomically high figure, at only represents 73% of the San Jose MSA’s average home value.In order to afford one of these homes, San Jose Millennials must save up for a down payment – an especially high down payment. According to the same study, San Jose Millennials will need to save $147,415 to afford a 20% down payment on a property – which takes the average San Jose Millennial 27.9 years to do based upon the area’s median household incomes. Compare this to Youngstown, Ohio – the most affordable metro to save for a down payment – where the average down payment is under $20,000 and only takes 6.9 years for Millennials to save.Given these startling numbers, is it any wonder more young adults are foregoing homeownership in lieu of renting a San Jose apartment?Although real estate prices are high, these realities make San Jose an attractive area for apartment owners to invest. Not only are more young people opting to rent, but many of these young people are drawn to the area by high-paying tech jobs so they have more disposable income than the average person. As a result, they’re able to pay more for rent, which is evidenced by the rising rents San Jose property managers are able to collect.San Jose has experienced some new apartment construction in recent years, but it’s nowhere near enough to keep up with demand. As a result, we suspect investors and San Jose property managers will continue to see rent appreciation for the foreseeable future.For all of these reasons, San Jose’s strong rental market fundamentals make it an attractive place for investors who can afford the up-front costs associated with acquiring rental property in this otherwise expensive housing market.

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San Jose among Handful of Bay Area Cities to Post Year-Over-Year Rent Decline

Everyone knows that housing in the Bay Area is expensive – but could there be some relief in sight? It looks that way, at least in San Jose.

Here’s what landlords, San Jose property managers and investors need to know about the latest market update.

According to RentCafe’s latest Apartment Market Report, San Jose is one of a few Bay Area cities that experienced an average rent decline between May 2016 and May 2017.Before residents rejoice (), it’s important to know that the rent decline was marginal at best. Unlike San Francisco, which posted a 3.3% decline, or Sunnyvale, which saw a 2% decline, rents in San Jose only dipped 0.2%.Some have suggested that decline may be a result of construction boom that’s taken place in San Jose since the recession. North San Jose was just named the #3 submarket in the entire nation for apartment construction activity, coming in behind only Long Island City, Queens and Downtown Los Angeles.On a positive note, San Jose rents are up month-over-month. Average rent prices increased 0.9% between April 2017 and May 2017, which gives San Jose property managers, landlords and investors reason to believe that the market will still be strong for the foreseeable future.“We’re still bullish on the San Jose market,” says Mynd co-founder Colin Wiel. “Any temporary dip in rents is balanced by the fact that San Jose is still among the strongest apartment markets in the nation.”RentCafe data confirms that point, with San Jose coming in at #10 on its list of U.S. cities with the highest rents as of May 2017. According to RentCafe, San Jose apartments are renting for $2,579 on average. When compared to San Francisco (), San Mateo (), Sunnyvale () and Santa Clara (), San Jose property managers and landlords appear to be serving up a bargain.It may seem like we are geeking out over this data, but its important data for San Jose property management companies, apartment owners and prospective investors to track closely. Staying on top of market trends helps landlords and San Jose property managers price their units accordingly in order to lease units quickly and at maximum value. Indeed, market rents are one of the key performance indicators () that should be monitored most closely.San Jose property managers, landlords and investors interested in learning more about the local market can find a host of information about San Jose in The MYNDful Investor. Subscribe to The MYNDful Investor to have these and other market updates delivered right to your inbox!

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North San Jose Ranks #3 on List of Nation's Most Active Apartment Submarkets

If it seems like we’ve been talking about San Jose a lot lately, it’s because we have. There’s so much development happening throughout the city that it can be hard for San Jose property managers, investors and building owners to stay up to speed!

As latest evidence:

North San Jose just ranked #3 in terms of U.S. neighborhoods to experience the most apartment development between 2010 and 2016. According to an analysis by RentCafe, at least 11 new buildings with 50+ units came online during this period, consisting of more than 6,800 new apartment units in total.That’s right – at least 6,800 new apartment buildings in North San Jose. That doesn’t even account for apartment construction in smaller buildings (), and doesn’t include development that’s happening elsewhere in San Jose. We’re talking thousands of new units in a single San Jose neighborhood.Consider Domain or Vista 99, two North San Jose apartment complexes completed during this time by developer Equity Residential. Domain is one of the largest modular-construction projects in the region; its 444 units were trucked in from Idaho before being assembled on site. Vista 99 is a more traditional apartment community consisting of 554 units in total.

One of biggest of all new developments is easily Crescent Village (). The project, developed by Irvine Company, opened in 2012 and contains 1,750 apartment homes. The complex includes an impressive 5-acre park, multiple pools and fitness centers, a spa, and on-site movie theater. Realizing the success of this project, Irvine Company went on to develop several other apartment buildings nearby – including The Redwoods, River Oaks and Brandon Park.Any local landlord or San Jose property management company will tell you the same thing: the North San Jose apartment market is hotter than ever.We’re starting to see recently completed apartment complexes trade at incredible prices. For example, Essex Property Trust shelled out a cool $92.8 million () for the 183-unit Enso apartment building at 175 Baypoint Parkway. The project had only been open for a year at the time it was sold. The Enso Apartments become the latest addition to Essex Property Trust’s North San Jose portfolio, which also includes the 769-unit Epic Apartments that came online just a few years ago.Most of the buildings going up in North San Jose are luxury apartment communities that are rich with amenities tailored to the area’s young, upwardly mobile tech workers. Landlords and San Jose property managers are easily getting $2,000+ a month in rent for these units.By the looks of the city’s North San Jose area plan, adopted in 2005, we suspect these trends will continue. The area plan calls for upwards of 26.7 MSF of office space, 32,000 new residential units, and close to 2.7 MSF of retail.It’s not just San Jose property managers, landlords and investors who have taken notice of the city’s potential. Apple is planning an 86-acre R&D campus in North San Jose, and earlier this month Google announced its intention to explore building a new “mega-campus” that could swell to 8 MSF of total mixed-use development near Diridon Station.This isn’t the first time North San Jose has earned the honor of being one of the nation’s most active markets for new apartment construction. Just last year, North San Jose/Milpitas landed the #6 spot on a list of the nation’s busiest apartment submarkets, clocking in a growth rate of 80.7% since 2012.North San Jose, once a bedroom community for Silicon Valley, is starting to come into its own as a tech hub in its own right. As more companies like Apple and Google put down roots in San Jose, it will only increase demand for new apartment construction.As always, we will follow development trends in North San Jose in order to keep San Jose property managers, landlords and prospective investors up to date on new opportunities.

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Study: Multifamily Rent Increases Outpace Income Growth in Southern CA

Rents in San Diego, like the rest of Southern California, continue to climb. And according to a new study, there’s no end in sight. The 2017 University of Southern California Casden Multifamily Economic Forecast predicts that average monthly rents in Southern California will increase through at least 2019.Higher rents aren’t necessarily a bad thing. In fact, rising rents are usually indicative of a strong economy. The unemployment rate in San Diego, for example, is under 4 percent – and is lower than it has been in nearly a decade. More than 17,200 new jobs were added between July 2016 and July 2017 alone, and San Diego’s economy is expected to continue its expansion over the next two years.But the USC study also finds that, despite a strong economy, income growth isn’t keeping pace with multifamily rent increases. Yes, more people are working. They just aren’t earning enough to afford SoCal’s rising rents. Real rents increased by 13% since 2005, while real incomes only increased by 5%."It's certainly no surprise to anyone — developers, landlords, tenants and elected officials — that available units are becoming more scarce and more expensive in Southern California,” said USC Lusk Center Director Richard Green, who co-authored the forecast with economists at Beacon Economics. “As employment and wages improve in the region, homeownership remains stagnant. This combination is a key stressor in the availability and cost of apartments and has an increasing impact on the local economy.”The study projects triple-digit rent increases across most of Southern California over the next two years.

A Closer Look at San Diego County

One of the other reasons rents continue to rise in San Diego County is because the population continues to swell. Since 2015, the population has grown by 1.5 percent and it is expected to continue to grow as long as the economy continues to grow.While there’s significant new multifamily construction underway or in the pipeline, it isn’t enough to meet growing demand. There were 3,123 multifamily residential permits pulled in the first half of 2017, but this is down by 33.1 percent from the same period the year prior.Here’s a snapshot of the multifamily outlook for San Diego County compared to today:2017

  • $1,927 average rent
  • 3.93% vacancy

2019

  • $2,048 average rent
  • 4.03% vacancy

The study also looked at a number of submarkets within San Diego County.The City of San Diego-Coastal area led the County’s submarkets with the highest average monthly rent in the second quarter of 2017 (), followed by the City of San Diego-Inland area () and North County (). Countywide, rental growth rates have ranged between 1.5 and over the past two years. The North County submarket had the fastest growth (), followed by the City of San Diego-Inland area () and City of San Diego-Coastal area ().City of San Diego-Coastal Area, 2008 to 2019

City of San Diego-Inland Area, 2008 to 2019

North County Area, 2008 to 2019

These stats may not seem alarming to the untrained eye. But for those of us watching the data closely, one thing is crystal clear: absent wage increases, this rental growth is unsustainable.And it could very well strain SoCal’s otherwise strong economy.“Labor markets in California aren’t as smooth as they should be,” the report notes, “as move-induced changes in housing costs could discourage people from moving to take on new jobs.” In other words, while there may be plenty of new jobs to be had, these jobs may go unfilled if people can’t afford to live here. Over time, this could drag the economy down.Rising rents also point to demand for multifamily housing – both existing housing and new construction. As noted above, San Diego is increasing its multifamily housing stock at record rates. This will certainly release some of the pressure on the rental market, but vacancy rates will still hover around 4% given pent-up demand.Given these market conditions, we expect both rents and home prices to continue rising for the foreseeable future.“Developers have been paying top dollar for land over the past 12-24 months and construction costs have been on the upswing which has created an influx of high-end rentals. With the heightened demand for rentals by those who now cannot afford the climbing prices of homes, assets with overdue renovations are getting the attention they need. This has enabled landlords to capitalize on the rent increases while improving the value of their assets.”These projections are important as they can help guide real estate investors as they evaluate various investment opportunities in San Diego County and beyond.

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Oakland Rental Housing Construction Activity Soars

The development of new rental units skyrocketed in Oakland in 2018 as more businesses, especially tech companies, flocked to the East Bay from San Francisco. This mass exodus has placed upward pressure on regional rents over the past two to three years, thus justifying the construction of new, ground-up multifamily properties. More than 11,000 units were under construction at the end of 2018 in Oakland, which is more than the number of units planned for San Francisco or San Jose. View a list of some of the most notable projects currently rising in Oakland, courtesy of Oakland Magazine.

Downtown Oakland Remains a Hotbed for Growth

More than 45% of the new apartment supply – or 5,000 units – is coming online in Downtown Oakland. While primarily aimed at wealthy renters, this new inventory is a welcomed addition. It's welcome because booming demand has led to strong rent growth and a lack of desirable options for renters.

Aerial View of Downtown Oakland California

As Oakland property owners know, new units have been leased up quickly throughout 2018. Vacancy remains at the historically low, despite this recent addition to supply. Yet, as multifamily development continues to increase and cranes keep filling the skyline, market analysts expect vacancies to rise moderately through 2020. However, vacancy for 4- to 5-star properties could peak at a high of 16% in 2020 as a possible economic downturn looms in the region. As a result, vacancies for 3-star buildings are expected to remain relatively stable through next year, according to CoStar. Therefore, Oakland property owners may have an easier time leasing up mid-tier properties, which are always in demand during every economic cycle.

Traffic Prompts Building Near Public Transit

Over the past several years, traffic congestion has plagued the entire Bay Area, clogging up major freeways and thoroughfares from Livermore to San Rafael and then down to San Jose. As a result, developers are building rentals within walking distance of BART stations and other public transit. Savvy investors may want to target these infill locations for long-term investment opportunities.

Bay bridge traffic

How has this onslaught of new construction impacted the Oakland/East Bay rental housing market as we approach the second month of 2019? Our latest State of the MYND East Bay/Oakland report takes a look. The report also contains a wealth of real estate trends to watch in the East Bay, including:

  • Rental rates
  • Vacancy forecasts
  • Construction starts
  • Local infrastructure

If you own Oakland rental property, or plan to invest in 2019, this resource is a must-read.

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Will San Francisco’s Economy Soar in 2019?

Since emerging from the Great Recession nearly a decade ago, the San Francisco economy and rental housing market have been among the nation’s strongest. The region’s bustling tech sector and still-strong finance and banking sector have bolstered record-level employment and household growth. In spite of this expansion, job growth started to moderate four years ago, partly due to a lack of qualified workers for certain highly skilled positions in San Francisco, San Mateo and Santa Clara counties.

Tech Stalwarts Stand Tall in San Francisco

Programmers working in a software develop company office.

In spite of recent volatility among some companies in the tech industry, such as Facebook and Apple, the tech sector continues to perform well overall. Google shares have steadily risen over the years, and the company has benefited from a spike in Internet advertising revenue, which rose by 21% in 2017 to $88 billion. Salesforce continues to expand, now employing 8,000 people in San Francisco. The company’s breakneck hiring pace in 2017 will likely put it ahead of Wells Fargo as San Francisco’s leading employer. Uber has also hired aggressively, increasing its local headcount to 5,000 in January 2018. Other tech companies that have been growing rapidly include Lyft, Dropbox, Affirm and AirBnB.

The Financial Services Sector Has Fully Recovered

San Francisco Skyline with Dramatic Clouds at Sunrise, California, USA

Although Wells Fargo and Charles Schwab have had some recent setbacks in years, companies in the financial services sector have overall steadily recovered from the subprime mortgage crisis 10 years ago. According to CoStar, the sector stands at 102% of its pre-recession peak.Altogether, total non-farm employment in San Francisco has risen to 125% of its pre-recession peak, with office-using employment growing to 133% of its pre-recession peak as of the third quarter of 2018. Employment in high- tech jobs has more than doubled in the expansion period lifting the entire economy, though the pace of job growth in tech has also slowed.

Large Apartment Developments Dominate

Working yellow crane near completed building in downtown San Francisco, California, USA. Construction and industrial background office and residential skyline, clear blue sky

San Francisco’s construction boom continues to mature. Since the Great Recession ended a decade ago, more than 100 high- and mid-rise rental properties containing some 17,000 units have been delivered. Most of these properties contain more than 100 units each. Since the beginning of 2015 alone, 10,000 units came to market, and another roughly 7,000 units are currently under construction. The new inventory has been well received: Most properties lease-up within a year of completion. However, a number of property owners offered tenant concessions to boost occupancy.Which neighborhoods are seeing the highest levels of construction? Download the State of MYND San Francisco report to find out.

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Rental Housing Inventory Floods Seattle

Seattle’s booming economy is fueling new housing formation and record levels of rental housing construction. Metro area job growth outperformed the national average since 2016 with many additions in high-paying sectors, such as technology and life sciences.

Seattle Skyline at Sunset with Space needle

In fact, CoStar calls demand growth “outsized” in the Puget Sound, a trend expected to continue, especially near downtown and Eastside employment centers. The high-paying tech sector continues to outperform other sector.: Amazon has plans to add 20,000 new workers by 2022, while Facebook and Google () could add a similar number of workers during the same time period. Here are some key metrics on the state of the Seattle rental housing market:

  • Q4 2018 YOY Vacancy Rate: 5.9%
  • Q4 2018 Asking Rent Growth: 2.5% to $1,637
  • No. of Units Under Construction: 24,704
  • No. of Units Delivered Q4 2018 YOY: 9,956

Construction of Seattle Rental Housing Units Skyrockets

A new building is being constructed with use of tower crane

Tech employees need places to live, which has sparked unprecedented demand for Seattle rental housing. Seattle has more cranes in the sky than any other in the country. Seattle rental housing inventory increased 14% over the past three years, impressive for a city of Seattle’s size. Supply continues to flood the local market: Approximately 28,000 units, or 10% of the total inventory, was added from 2016 to 2018. Tens of thousands more units are expected over the next few years. In addition to the downtown area and Eastside submarkets, projects in outlying areas like Pierce, South King and Snohomish counties, are also rising.

Builders Focus on Amazon and Transit-Oriented Projects

Seattle light rail

Amazon is a major engine of economic growth in the region. As a result, developers are focusing on building in neighborhoods with easy access to the online retailer’s offices. For instance, Holland Partners opened the 325-unit Westlake Steps in Westlake in August 2017, just steps away from Amazon offices. The project was fully stabilized a year later.Transit-oriented projects have also grown in popularity. In South Seattle, developers are targeting Columbia City, Othello Station and Beacon Hill. A majority of these rentals are located 20 minutes from downtown along the light rail line. As the light rail expands both east and north, transit-oriented projects will continue to rise in tandem, even though the lines aren’t expected to open until 2023 and 2024, respectively. For more information on the state of Seattle rental housing, download our latest State of Mynd Report.

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High Occupancy and Strong Employment Fuel the North Bay Rental Market

North Bay condo

The North Bay/Sonoma County rental housing market has strengthened over the past three years. New construction projects are rising and rental occupancy remains high. In fact, a housing shortage following the devastating 2017 wildfires pushed vacancy to near historic lows of 3% at the end of 2017. Sonoma County’s tourism-led economy is directly tied to the Bay Area. Over the past decade, the region has emerged as a global destination for tourists, helping the local economy outperform the nation. North Bay rental housing also benefits from the success of the Bay Area’s tech sector, with newly minted tech millionaires finding Wine Country an ideal location for weekend getaways.

Developers Remain Busy in the North Bay

A new building is being constructed with use of tower crane

Large-scale multifamily projects are rising throughout the region, from Santa Rosa to Rohnert Park to Petaluma, and points in between. In Rohnert Park, one of the biggest projects is the 244-unit, luxury Fiori Estates complex. Other notable developments include The Artisan, a 144-unit high-end rental complex in Petaluma. Units leased up rapidly, and the well-located asset stabilized within two quarters. Amenities include car-charging stations, a concierge, clubhouse, fitness center, pool, spa, a property manager and on-site maintenance staff.

North Bay Multifamily Construction bar graph

In November 2018, the City of Rohnert Park approved Laulima Development’s plans to redevelop the former State Farm campus near the Sonoma-Marin Area Real Transit () station into a mixed-use downtown district. Upon completion, the project will contain at least 300 multifamily units.North Bay rental supply was impacted by the 2017 wildfires. While the destruction was primarily relegated to single-family houses, several apartment properties were also demolished.

Key North Bay/Sonoma County Rental Housing Market Indicators

  • Q4 2018 Unemployment: 2.6% vs. 3.8% Nationwide
  • Q4 2018 Year-Over-Year Vacancy Rate: 4.3%
  • Q4 2018 YOY Asking Rent Growth: -1.1%

Rents Projected to Remain Steady in 2019

Rental housing demand soared following the 2017 North Bay wildfires. With demand at an all-time high, property owners pushed rental rates higher. Emergency legislation passed in Mendocino, Napa, Solano and Sonoma counties capped annual rent increases at 10% through April 2018. Despite the immediate short-term gains, average asking rents in Sonoma County remain slightly below Napa County’s. In addition, they were 15% higher than Vallejo average rents at the end of Q4.

North Bay Multifamily Rent line graph

The wildfires pushed Santa Rosa rents up 2% in October 2017 and annual rent growth reached nearly 7% by year-end 2017, leading all California markets. Nonetheless, rent growth throughout 2018 remained negligible as the market has given back some of the gains from achieved in 2017.

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Lack of Affordable For-Sale Housing Boosts Seattle Area Rental Market

The Seattle rental market has been red hot for several years. The region attracts both foreign and domestic entities, and the economy has outperformed the national average over the past few years with job growth in the tech and life sciences sectors. People continue to move to Seattle, which has contributed to outsized demand. Amazon plans to add enough space for more than 10,000 new workers in the region by 2022, while Facebook and Google may add a similar number of workers combined. While the high-tech sector continues to expand, not every Seattle resident works for tech firms like Amazon or Microsoft. Although this sector has spurred activity for high-end rental units downtown, demand has also accelerated for lower-end units in the Seattle rental market.

Seattle Houses

Vacancy Rate in Seattle Remains Slightly Elevated

The development of high-end units has reached unprecedented levels, especially in urban core areas like the downtown Seattle and Lake Union, as well as suburban Eastside cities such as Bellevue and Redmond. As a result, vacancy remains slightly elevated in these submarkets, and currently stands at 5.4% overall. A preference for urban living and the lack of affordability keep residents in apartments or single-family rental () homes. With such high home price appreciation over the past few years, homeownership has become increasingly out of reach. Even high-paid tech workers struggle to find desirable homes in King County: The median home price is approximately $620,000, making the Seattle rental market appear more appealing.

Submarkets Outside of Seattle Offer Strong Rental Investment Opportunities

Homeownership is more attainable in peripheral areas like Pierce and Snohomish counties, where Mynd Property Management Regional Director Enrique Jevons says demand for homes is also high in these submarkets due to their more suburban location. While rental demand for high-end units is strong, not everyone works for Amazon or Microsoft. Affordability is a major concern in Seattle, thus demand for Class C units has skyrocketed. To address the affordability issue, Seattle City Council passed legislation to build more affordable units in 2017 and 2019. More than 40,000 households in Seattle pay more than 50% of their income on rent, and the rate continues to grow. Nonetheless, developers are required to include affordable units in new apartment projects, or pay into a fund to help that helps develop units elsewhere. New developments will have to include between 5% and 11% of units as affordable, or contribute anywhere from $5 a square foot to $32.75 a square foot to the fund, depending on the neighborhood.

Rent Hikes Soar Throughout Greater Seattle

A dynamic regional economy, and a preference for urban living among all age groups in the metro, translates into strong demand. Some of the largest cumulative rent hikes in the country took place in the Seattle metro since 2012. However, the onslaught of new construction continues metrowide, which has resulted in rent-growth deceleration. In the face of a glut of new supply, overall rent growth has slowed significantly, and a swollen pipeline should contribute to further deceleration. This trend prevails in the urban core, where most deliveries are concentrated. Not surprisingly, concessions are highest in downtown submarkets with a large concentration of these properties.

Seattle Multifamily Rent line and bar graph

Source: CoStarIn the urban core, residents can expect up to two months of free rent on a 16-month lease. West Edge, one of downtown's newest high-rises, was offering six weeks of free rent during lease-up. Peripheral suburban submarkets, like Federal Way, Auburn and Kent have reaped the benefits of renters being priced out of the core. Everett, Puyallup and Tacoma have also exhibited strong rent growth recently due to tight vacancies and low comparable rents. While the commute is much longer to downtown Seattle, the increased value is enticing, especially for families.For more information about the Seattle rental market, including trends shaping the economy and new developments, download the entire State of Mynd Seattle Q2 report today.

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