Rents are rolling along with a full head of steam in the first quarter of 2014. Over the past four years, there has been a very real demographic shift away from homeownership. Much of the recent home buying activity is investors looking to get into the rental business. Millennials coming into the market don’t have a stigma about rental housing. In the pre-recession era, renting didn’t stack up well against the glory of homeownership. It was perceived as a fall back plan when your luck ran out, acceptable only when you just graduated or were making some kind of transition such as relocating for a new job or getting a divorce.
Today rentals are the cool kid on the block. Owning rental property is a business which seeks to attract and retain customers and it does this by offering service, amenities and convenience. Although the business model of operating a rental property hasn’t changed much, consumer needs and values have. Service and convenience is what the people want. And it’s certainly convenient that they’re not required to enter into an expensive long term relationship with a home. They want a cool place to live without needing to “do” anything to make their lifestyle happen.
Below is the first quarter 2014 Metropolitan Statistical Area synopsis for California:
Metropolitan Statistical Area
Current Avg Rent
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Qrtly Avg Rent Change
Yr Over Yr Rent Increase
|Fresno||$819||1.0% from $811||0.1% from $818|
|Los Angeles-Long Beach – Santa Ana||$1,777||0.3% from $1771||4.3% from $1,703|
|Oxnard-Thousand Oaks -Ventura||$1,605||0.6% from $1,595||5.5% from $1,522|
|Riverside-San Bernardino-Ontario||$1,165||2.0% from $1,142||4.9% from $1,111|
|Sacramento-Arden – Arcade -Roseville||$1,017||1.9% from $998||4.1% from $977|
|San Diego-Carlsbad -San Marcos||$1,537||0.5% from $1,529||4.6% from $1,469|
|San Francisco-Oakland -Fremont||$2,069||1.5% from $2,039||9.6% from $1,888|
|San Jose-Sunnyvale -Santa Clara||$2,197||2.0% from $2,153||10.2% from $1,994|
|Santa Rosa-Petaluma||$1,431||-0.5% from $1,438||9.3% from $1,309|
|Vallejo-Fairfield||$1,203||1.9% from $1,181||6.2% from $1,133|
The number one spot for rent growth this quarter is San Jose. Rents grew by $44/mo., up from $2,153/mo. in the fourth quarter of 2013 to $2,197/mo. San Jose is a market where many new units are being built to meet the overwhelming demand for rental housing.
Seattle took the number two spot up $34/mo. from $1,251/mo. to $1,285/mo. Denver is next, up $29/mo. from $1,090/mo. to $1,119/mo. Portland performed well up $26/mo. from $1,016/mo. to $1,042/mo. Rounding out the top five is Riverside-San Bernardino, California. Its rent was up $23/mo. from $1,142/mo. to $1,165/mo. Usually we don’t add a sixth in the top five but we thought it was worth noting that Houston was up $19/mo. from $882/mo. to $901/mo. a 2.2% increase for the quarter.
Some industry leaders think it’s misleading if rents go up when new construction might be the sole cause. So, we decided to compare what the industry coins “same store” meaning all the properties built before 2013. Of the top six markets for the quarter, same store rents were only a few dollars lower than when the new properties were included, but in San Jose, the same store rent increase was significantly lower at $19/mo.
The primary drivers of rent growth are population and job growth. A recent study conducted by Carey School of Business at Arizona State revealed job growth statistics for 2013. The study said there were 2.26 million jobs added nationwide last year and ranked the markets in terms of their performance. We found there was a correlation between their top 10 ranking job growth markets and our top ten ranking on rent growth.
The Carey report used a percentage year over year increase to rank the markets and Riverside-San Bernardino came in at number one. The markets where RealFacts top ten was in agreement with the Carey report were Riverside-San Bernardino, San Francisco, Denver, Houston and Seattle. The Carey report showed Phoenix, Dallas, Orlando, San Diego and Los Angeles on their top ten which probably means they will also appear on ours sometime soon. Rents in Los Angeles went up a mere six dollars on average for the quarter which suggests to us that there is sure to be a surge in rents in the near future.
Sarah Bridge is the Founder and Managing Member of RealFacts LLC. RealFacts has published data for the multi-family housing community since 1989 and surveys every community each quarter for current rent and occupancy levels. For more information or to see the full first quarter 2014 synopsis, please visit www.realfacts.com.