According to the RealFacts, LLC’s most recent survey conducted in June, 2013 rents are up across the board in every market across the country.  Of the 41 markets published, rents were up in 39 of them and remained flat in two.  This corresponds with a modest yet steadfast increase in the supply of new jobs which most markets are benefiting from to various degrees.

A recent study conducted by the investment brokerage firm Marcus & Millichap, headquartered in Palo Alto, California, say that San Jose is projected to add 27,500 additional jobs to its workforce, right on the heels of the 2012 gain at 34,200. Among the usual suspects for industry growth responsible for creating new jobs are professional, technology and business services.  M&M also predictsSan Jose’s economic strength will be fortified by increased spending on construction and hospitality services.

Another factor greatly influencing the recent ramp up is a serious lack of rental housing.  Go to any urban core center and you’ll quickly observe a skyline crowded with cranes—tirelessly working away to bring a fresh supply of new units to eager echo boomers with a serious appetite for rental housing. Although there are many rental units in various stages of planning, development and construction, it’s a slow and expensive process and so far they haven’t been hitting the market fast enough to meet the pent up demand.

At the top of the 2Q13 survey isSan Joseposting an increase $134/mo. or 6.7% from $1,994/mo. to $2,128/mo.  Next up isSan Franciscowith $83/mo. or 4.4% from $1,888/mo. to $1,971/mo. Seattleis going strong despite its surge of new supply projected to total around 12K units by the end of 2013.Portlandranks fifth in our top six for the current quarter with an increase of $34/mo. from $966/mo. to $1,000/mo.  It’s no surprise to learn thatAustinis also posting significant gains of $32/mo. from $960/mo. to $992/mo.  Job growth has expanded by 4.0% in 2012 and expected to increase another 4.0% by year end.  Developers are so confident in this market that they believe theAustinmarket will support the addition of 9,000 units, thus growing its total rental housing inventory by 8%.

So far, it appears aggressive rent hikes and new construction hasn’t had a negative impact on occupancy rates. San Franciscooccupancy rate is up by 1.2% from 95.6% to 96.8%.  Despite the fact thatPortlandwill add nearly 4,000 new units to its overall inventory, its’ occupancy rate has gone up by a whopping 1.0% from 95.1% to 96.1%.

[Following are some figures for Metropolitan Statistical Areas in California.]

 

Current  

Qtrly   Avg Yr over Yr 

Qtrly   Avg Yr over Yr

Metropolitan   Statistical Area

Avg Rent

Rent Change

Rent Increase

       
Bakersfield CA           $933 0.6% from   $927 3.6% from   $901
Fresno CA $817 -0.1% from   $818 0.1% from   $816
Los   Angeles-Long Beach-Santa Ana $1,727 1.5% from   $1,702 3.2% from   $1,673
Oxnard – Thousand Oaks -Ventura $1,554 2.1% from   $1,522                   3.5% from   $1,502
Riverside-San   Bernardino Ontario   $1,125 1.3% from   $1,111                  2.1% from   $1,102
Sacramento-Arden-Arcade-Roseville   $986 0.9% from   $977                     2.4% from   $963
San   Diego-Carlsbad-San Marcos $1,510 2.8% from   $1,469                 4.2% from   $1,449
San   Francisco-Oakland-Fremont $1,971 4.4% from   $1,888                  8.9% from   $1,810
San   Jose-Sunnyvale-Santa Clara $2,128 6.7% from   $1,994                 8.4% from   $1,964
Santa   Cruz-Watsonville $1,743 2.2% from   $1,705                 5.8% from   $1,648
Santa   Rosa-Petaluma $1,335 2.1% from   $1,307                 6.7% from   $1,251
Vallejo-Fairfield   $1,149 1.4% from   $1,133                 1.3% from   $1,134

So what does all this mean for the future of rent increases?  Since 2010, it seems like rents just keep moving up with no sign of slowing, but savvy investors  know  all too well that many markets are likely to become overheated and oversupplied.  This coupled with the inevitable rise in interest rates is going to catch up with them sooner or later.  In 2014-2015 rents will stall or drift downwards as occupancy rates decline and put a halt to future appreciation for their apartment property.

Sarah Bridge is Founder and Managing Member of RealFacts LLC.  For more information, a full report, or specified reports, visit www.realfacts.com.

 

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