Silicon Valley Has Bay Area's Lowest Apartment Vacancy Rate

Layoffs and hiring freezes by the tech giants in Silicon Valley have not put a dent in multifamily demand in the San Jose Metro because these cutbacks don’t reflect the area’s overall labor market, which is still strong.

According to a new Q2 2023 multifamily market report from Marcus & Millichap, Silicon Valley is maintaining the Bay Area’s lowest apartment vacancy rate, realigning with its historical pre-pandemic average.

“Although net apartment absorption has slowed nationally due to a flattening economy, the stability of Silicon Valley’s labor market helped sustain demand and moderated upward pressure on availability,” Marcus & Millichap said.

“At 4.4%, vacancy in the South Bay was the lowest among Bay Area metros and only 40 basis points above the market’s 2019 level,” the report said. “The rate should remain relatively steady throughout 2023 as completions fall to a four-year low, limiting competition from new supply.”

Rents in the San Jose Metro—where average effective rents have eclipsed $3,000 per month—are on track to increase by 3.7%, according to M&M’s 2023 outlook.

The average effective rent in San Jose is one of the highest among all major US markets, but home prices don’t offer a more affordable option: at the end of the first quarter, the median single-family home price was approaching $1.7M in San Jose.

The San Jose Metro has posted job gains in each month since February 2021. According to M&M’s outlook, firms in Silicon Valley are expected to increase overall headcounts by 1.4% in 2023, adding a total of 30K positions above the previous peak—less than half of last year’s gain, but enough to sustain demand for housing.

Deliveries in 2023 are expected to increase the multifamily inventory in the San Jose Metro by just 1.3%, the lowest level since 2019.

Developers continue to que up to build new housing in San Jose. This week, a group operating as High Street Northern California Development filed plans with the city to build up to 1,000 new housing units on a 10-acre site currently occupied by a shuttered casino.

The High Street entity listed as a contact an executive with Trammell Crow, the San Jose Mercury News reported.

The development site, located at the intersection of Saratoga Avenue and Kiely Boulevard, is occupied by Harry’s Hofbrau, a popular local restaurant, and the now-closed Garden City Casino. The preliminary plans call for the demolition of these structures for housing development including 13K SF of ground floor retail.