"The San Jose apartment market is nearing the bottom," says Gary R. Lucas, senior vice president and regional manager of the firm's Palo Alto office. "Vacancy improved early in the year, due to heightened demand for apartments. Job creation is essential for the recovery of the local apartment market and over the next year; the resurgence of employment growth is forecast to generate enough demand to keep market fundamentals moving towards stabilization."
After falling by 4.3%, or 39,000 jobs, from mid-2002 to mid-2003, employment is forecast to grow by 0.5% from mid-2003 through mid-2004. While that works out to a net gain of 4,600 new jobs, a few sectors will continue to contract including construction, which is forecast to shrink by 1,600 jobs over the next year.
In support of the recovery, developers abandoned projects in droves and delivered just 800 units in 2002, according to the report. That figure is expected to rise to 1,150 units in 2003 and then fall back to 950 in 2004. The North Park complex in San Jose is home to 43% of the units slated for completion in 2003.
While the 6.5% vacancy rate during the second three months of 2003 is a decline from the second quarter of 2002, combined first and second quarter vacancy is higher than the first half of 2002. Moreover, vacancy is expected to continue rising over the next year before stabilizing at around 7% by mid-2004.
In an effort to hold occupancies, average asking rents slipped by an estimated 7% over the last 12 months, to $1,356 per month. Over the next 12 months, they are forecast to fall by another 4%, to $1,302 per month, with the bulk of the change taking place during the latter half of 2003. The Cupertino submarket was the hardest hit over the year, with rents falling 10.5% to an average of $1,575 per month.
On the investment side, the gap between buyer and seller is widening, slowing sales dramatically. Sales will continue to be sluggish as deals are called off after buyers in escrow look to renegotiate based on the falling fundamentals, according to the report. Up through June, however, prices remained high relative to market conditions, with the median price per unit, at $128,125, down just 8.8% from 2001, when prices peaked.
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