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Rental market is red-hot
Bay Area rents are climbing; units going fast
Marni Leff Kottle, Chronicle Staff Writer
Thursday, October 19, 2006
More than 25 people packed an open house Saturday for a studio apartment on Russian Hill with hardwood floors, a view of the Bay and a monthly rent of $1,450.
By Sunday the unit was snapped up.
That sizzling demand is driving up prices, experts said. The average asking rent for a Bay Area apartment jumped 8.2 percent to $1,415 in the third quarter compared with $1,378 for the same period a year earlier, according to an analysis by Novato research firm RealFacts that included apartments of all sizes from studios to three bedrooms. The occupancy rate rose 1.2 percent, to 96.2 percent.
The apartment rental market and the housing market have traded places.
As the promise of big gains from the purchase of a home has waned, more people are being driven to the rental market, said Stephen Levy, director of the Center for the Continuing Study of the California Economy. Data released Tuesday by DataQuick shows that home prices in the Bay Area dipped 0.8 percent from September 2005 to September 2006, the first drop in more than four years.
"Renting is still cheap relative to home owning," Levy said. "Now that people are realizing that there is going to be no appreciation in the near future, they're renting. There is not a lot of apartment building going on, so they're competing for a restricted supply."
Agents say that they've noticed renters with enough money to buy a home are sitting on the sidelines.
"Normally there's a steady pool of tenants who move out and graduate from the tenant pool and become buyers," said Laura McNabb Gray, a rental agent with Paragon Real Estate Group in San Francisco. "Some of those people who I rent to have hundreds of thousands of dollars in savings and I ask them, 'Why aren't you buying?' And they say, 'We're waiting to see what happens with the market.' "
Demand is particularly strong for apartment units under $2,000, said Gray, noting three such units at that price were rented last week after only one showing. Moreover, she said, few units in neighborhoods north of California Street such as Pacific Heights, Nob Hill and the Marina sit on the market longer than a week.
And the posturing is back. "People are playing games, like showing little or no interest or being totally calm if there are multiple people there at the same showing," Gray said. "Then, after we all leave, my phone lights up like a Christmas tree."
With inventory tight, renters are reluctant to move. "I've done this for 16 years and I've seen everything," said Valerie Delepine, an agent with Hill & Co. "It has been a very tough, tough market. There is no inventory whatsoever."
The lack of inventory is the major difference between now and the dot-com days. "Then, if I had 10 listings in one day, they'd be gone the same day," Delepine said. "Now, we don't have 10 listings. If we get two listings a week we are very fortunate."
According to RealFacts, the biggest rental increases occurred in the South Bay and Silicon Valley in the third quarter, with average rents for all types of units rising 17.5 percent in Mountain View, 10.9 percent in San Mateo and 13.4 percent in Santa Clara compared with the third quarter of 2005.
While rents remain below their dot-com peaks in Silicon Valley, their rapid rise is a sign of the region's recovery, said Chris Bates, director of sales and marketing for RealFacts. "The local economy is strong and growing," he said. "The jobs that are being created down there are high-earning. People are returning to Silicon Valley for jobs, so occupancies are up and rents are up."
The average price of a one-bedroom apartment in the area that includes San Jose, Sunnyvale and Santa Clara jumped 11.4 percent to $1,296, while the rent for the same-size unit in the region that includes San Francisco, Oakland and Fremont climbed 7.3 percent to $1,268.
The data in the RealFacts survey are based on apartment buildings with 50 or more apartments. That excludes many apartments in places like San Francisco, where almost 40 percent of the rental buildings have fewer than five units.
E-mail Marni Leff Kottle at mkottle@sfchronicle.com.
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