Report: Apartment Market Recovery to Accelerate

SAN FRANCISCO-The local apartment market will accelerate over the balance of 2004, according to the latest Bay Area apartment market research report by Marcus & Millichap Real Estate Investment Brokerage Co. “We believe the worst is over for the Bay Area economy with job growth expected on both sides of the Bay,” says M&M regional manager Jeffrey M. Mishkin. “We expect vacancies and rents to begin to firm toward the end of the year. Investment activity will likely accelerate over the coming months as buyers and sellers anticipate rising interest rates.”Two key factors are employment growth combined with modest construction, according to the report. Employment growth in San Francisco will be 9,400 jobs while job growth in the Oakland MSA will be 11,200, according to the report. With regard to new development, Oakland will add approximately 1,700 units this year, down from nearly 1,900 units in 2003, while approximately 1,400 units will come online in San Francisco. The report predicts that vacancy in Oakland will ease to approximately 6% while the San Francisco area’s vacancy falls to 4.5%. “Apartment owners in the city of San Francisco continue to feel the pinch of above-average vacancy near 5%,” states the report.As for rental rates, the report predicts the East Bay will see a modest decline of 0.6%, to $1,200 per month. Owners in San Francisco, meanwhile, shaved another 3.2% off asking rents, bringing the average to $1,773 per month. On the investment front, the report predicts another 5% to 7% increase in values this year on both sides of the Bay. Such a rise would push the median price of apartments up to approximately $185,000 per unit in the San Francisco MSA and $120,000 per unit in the Oakland MSA. “The more-affordable East Bay properties have garnered significant investor attention, which resulted in the number of transactions and total dollar volume in 2003 exceeding the previous sales peak recorded in 2000,” states the report.