South Bay Leads Increases as Rents Soar

Monday, July 14, 2008
Marni Leff Kottle
San Francisco Chronicle

Rising rents aren't just a San Francisco phenomenon. Although growth in San Francisco is strongest, rents ticked up in each of the region's nine counties in the first half of the year, according to Marcus & Millichap.

The sharpest increases occurred in the South Bay counties, with the average rent jumping 8 percent to $1,786 in San Mateo and 7 percent to $1,679 in Santa Clara in the second quarter compared with the same period a year earlier. Even rents in the East Bay, where growth was more modest, climbed, helped by the strength of the San Francisco and Silicon Valley markets, according to Jerry Smith, regional manager for Marcus & Millichap's East Bay office.

"The East Bay is being framed by some very, very strong bordering markets that are experiencing 7, 8, 9 percent rent growth," Smith said. "Silicon Valley and San Francisco are leading markets on a nationwide scale for rent growth. We're seeing a lot of pressure on those rents, and it's spilling over into the East Bay market."

The average rent climbed 4.1 percent in Marin County to $1,591 a month while rising just 2.4 percent in Solano County to $1,164.

The affordability of leasing a high-end unit compared with buying a condo or house is also pushing some potential buyers back into the rental market, raising rents, Smith said. He pointed to that affordability gap as the single biggest driver of the currently robust apartment market in the Bay Area.

"That sort of disparity adds to a landlord's ability to move rents," he said. "The best tenants are re-emerging in the marketplace as renters instead of purchasing a home."

Rents jumped 6.2 percent in Contra Costa despite the county's bleak for-sale housing market. Contra Costa posted the sharpest drop in home prices of any of the region's nine counties in May. The median price there plummeted 33.8 percent to $390,500 in May, compared with the same period a year earlier, according to DataQuick Information Systems.

As cities such as Walnut Creek have drawn in new businesses, employees have followed, pushing rents up and helping to offset declines seen in the far reaches of the county.

"Really in the East Bay, it's a tale of two markets," Smith said. "In Walnut Creek, in Lafayette, Moraga, Orinda, in desirable parts of Oakland, we're seeing 8 to 10 percent rent growth, and that's making up for what's happening in the rougher markets in Oakland and eastern Contra Costa."

With vacancy rates hovering under 5 percent in six of the region's nine counties - the only exceptions are Contra Costa, Solano and Sonoma - rents may continue to climb, at least for now.

"What most experienced landlords say is as long as your vacancy is below 5 percent, you can raise rents and you'll see little to no concessions in the marketplace," Smith said.

Average rents and vacancy rates

It remains a landlord's market as rents have increased and the vacancy rate has remained stable during the last year in all nine Bay Area counties.*

County 2nd quarter, 2007 2nd quarter 2008

Year-over-

year change

Vacancy rate
Alameda $1,337 $1,409 5.4% 4.7%
Contra Costa $1,250 $1,328 6.2 5.1
Marin $1,528 $1,591 4.1 2.8
Napa $1,264 $1,307 3.4 3.7
San Francisco $1,757 $1,926 9.6 4.0
San Mateo $1,654 $1,786 8.0 4.1
Santa Clara $1,569 $1,679 7.0 2.7
Solano $1,137 $1,164 2.4 5.0
Sonoma $1,140 $1,212 6.3 5.5

*Buildings with five or more units. Average rent includes units that range from studios to four-bedrooms.

Sources: Marcus & Millichap Research Services, Real Facts Online

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