It’s no secret that Silicon Valley is experiencing an enviable economic growth period. It’s also no secret that with the addition of a huge number of jobs in some sectors, people are migrating into the valley and need places to live. And it doesn’t matter to many of them what type of residence they live in, as long as they can get back and forth to work. Say hello to another housing market that’s growing fast and filling up rapidly, despite record-high prices: apartments.
More jobs = more apartments
In a July 15, 2014 article in the Silicon Valley Business Journal, an economist pointed out that in the last two years, 72,000 new jobs have sprung up in the San Jose metro area alone. Economist Lawrence Souza predicted that this growth would require the support of 12,500 new housing units. He likened the expansion to the dot.com frenzy of 1998, 1999 and 2000.
Souza stated that “Santa Clara County is now one of the top destinations for in-migrations and population growth.”
How is the county coping with the influx of workers? In 2013 and 2014, 3,996 new apartment units went on the market. Compare that with 3,139 for the previous four years combined.
The Business Journal report said that historically such a large number of new units causes a dip in overall occupancy. Not this time around. Occupancy rates in Santa Clara County actually rose from 94.1% in first quarter 2014 to 96% in the second quarter.
High rent prices no deterrent
All this in spite of monthly rent prices that jumped an average of $124 per unit in the second quarter compared to the first. In the past few years, prices had risen but at a slower pace, with increases of $30 to $50 per quarter.
One source put the current average second-quarter rent price for all apartment types in Santa Clara County at $2,321. In the first quarter it was $2,197. A year ago it was $2,128. Rent is even higher in San Mateo County, with a current average of $2,470, up from $2,360 in quarter one and $2,284 a year ago.
An example of apartment rent prices that would astound many who live outside the valley can be found at Santana Row’s Misora luxury project in San Jose. A studio apartment here will run you $1,875 per month, while high-end lofts go for $9,065. The 212-unit development was completed in June, and by July 15 it was 95% leased.
Santa Clara County and city averages
The average for one-bedroom apartments throughout Santa Clara County in second quarter 2014 was $2,082, up from $1,978 in the first quarter. Palo Alto apartments match that average, where rents there are up $144 from the first quarter. Mountain View’s average of $2,381 is up $152; Sunnyvale’s $2,095 is up $120; San Jose’s $1,945 us up $77.
The “good news” for renters is that this trend is unlikely to continue. Spring and summer are historically the peak renting seasons, with more moderate pricing and slightly higher availability at other times during the year. At the current pace, rents are rising $400 to $500 per year, and that’s not indefinitely sustainable, even for Silicon Valley.