Report: Job Growth Means Solid Gains for Apartment Market

SAN FRANCISCO-The Bay Area apartment market is expected to post solid gains in concert with modest job growth, according to the latest research report from Marcus & Millichap Real Estate Investment Brokerage Co. “Bay Area employers are adding jobs this year for the first time since 2000, which is boosting demand for local apartments,” says regional manager Jeffrey Mishkin, commenting on the report.Marginal job growth combined with reduced construction will reduce average vacancy in San Francisco and the East Bay by 10 basis points to 5.3% by the end of the year, according to the report. San Francisco itself will have fallen 70 basis points by the end of the year to 4.5%, according to the report, while Oakland is expected to end the year at 6% after climbing almost 100 basis points to 6.5% through the first half of the year. Vacancy in the Tri-Valley submarket has fallen by 80 basis points so far this year and now stands at 5.7%, with further improvement likely over the balance of 2004, according to the report. It is estimated San Francisco will add 12,000 jobs by the end of the year thanks in large part to the professional and business services sector, which has added more than 4,000 jobs to date in 2004 and is expected to create an additional 5,000 jobs by year end, according to the report. Renewed job growth in the East Bay also is being led by the business services sector, followed closely by financial services.Meantime, development activity this year has remained modest in the Bay Area with 23 projects totaling 3,195 units expected to have come online by year’s end. Thirteen of the 23 projects are located in the East Bay, where 1,428 units will be added. The remaining 10 projects total approximately 1,200 units and are located in the San Francisco area. The pipeline of projects remains significant with 15,175 units in various stages of planning, though only four have a scheduled target start date, according to the report.While most submarkets posted only minor changes in rent during the year–both San Francisco and the Bay Area saw asking rents change by less than 1%–after an average decrease of 9% in each of the past three years. Sales prices, meanwhile, continue to climb. Transaction volume in San Francisco is already 80% of that posted for all of 2003, with dollar volume closer to 90% of last year’s total. The current median price is more than $180,000 per unit, 3% higher than in 2003, with additional increases expected through the end of the year. Investor demand in Oakland has lifted prices 4% to $117,500 per unit. “Investor sentiment is strong, supported by the region’s positive long-term outlook, and both institutional and private investors are active in the local market, which continues to put upward pressure on values,” concludes Mishkin.