Have Silicon Valley rents peaked? Third-quarter numbers suggest the past few years’ skyrocketing prices may have stabilized.
Silicon Valley’s rapid apartment rent run-up may be taking a breather.
Occupancy dropped and rent growth slowed as a flurry of new units hit the market, according to the latest figures from apartment tracker RealFacts.
Average rents for all unit types at Santa Clara County communities larger than 50 units flatlined – rising just $12 in the third quarter, RealFacts said.
The pause came as occupancy dropped to 94.4 percent, a 1 percent decrease compared to a year ago. In the key apartment market of San Jose, occupancy dropped 2.1 percent year over year, to 93.4 percent. Average rents in San Jose jumped $26 a month, to $2,015.
“Considering it’s been above 95 percent for the better part of three-and-a-half years, this is fairly significant,” RealFacts’ Nick Grotjahn said of the occupancy decline.
A big part of the reason is supply, Grotjahn said. Developers have been busy in recent quarters building thousands of new units, especially in North San Jose, and many of those projects are just now hitting the market.
Joshua Howard, executive director for the California Apartment Association Tri County Division, said the moderation in leasing is good news for tenants and shows construction of new apartments can help cool off the region’s overheated cost of housing.
“It’s helping to address this issue of housing becoming less affordable to people,” he said.
Still, rents in Silicon Valley are not cheap. Year over year, they increased 8.1 percent. That was less than the 10.5 percent increase a year earlier, Howard noted.
There is anecdotal evidence that landlords are beginning to offer more concessions such as free rent. But some concessions are expected during initial lease-up, observers said.
Indeed, developers contacted Tuesday said they’re still seeing strong renter demand for new projects.
One of them is Apex, a 366-unit luxury project from Lyon Communities near the Great Mall in Milpitas.
Lyon has released 100 units so far and has signed new leases for 65 of them, officials said.
“We continue to see extremely high traffic levels,” General Manager Michael Kennedy told me. “Leasing levels are on track with where we projected 8 months ago, when we did lease-up projections.”
He said renters have included many newly hired tech workers coming from outside the region.
“We do get a small percentage from people shopping around” for the best deal, he said. “But by and large it seems like employment and hiring has been driving the surge in traffic.”
Rents at the complex start at $1,700 for a studio; one bedrooms are in the neighborhood of $2,300. Three-bedrooms are going for up to $3,600. Any unit gets you access to a swanky rooftop amenities deck including a fitness center with Bay views, a pet spa and saltwater pool.
Howard, of CAA Tri County, said he does not expect the trend in Q3 to reverse course anytime soon.
“My sense is rental prices will come under heavy pressure going into the fourth quarter,” he said. One reason: “Apartment owners and operators are less inclined to push rents during the holidays.”