Rent prices in San Francisco reported an 11.6 percent year-over-year growth, according to a June report by Yardi Matrix, a unit of Santa Barbara-based real estate software vendor Yardi, which came in third behind Portland and Denver.
As of April, the company recorded a 2.8 percent year-over-year job growth in San Francisco. During this time, Yardi also recorded a similar growth in housing units, as a percent of total available stock. However, the company’s 11.1 percent forecast rent growth in the city was exceeded by an actual, 6-month growth of nearly 12 percent.
“What’s happened is San Francisco has undergone a sort of resurgence of urban living that’s much different than [it was] historically,” said Jack Kern, director of research and publications at Yardi. “I’m not surprised it exceeds what it’s anticipating.”
With Silicon Valley’s rent situation not much more forgiving, many major office campuses are relocating back into urban areas, Kern said. High-profile tech companies such as Google and LinkedIn have moved some of their campuses to downtown San Francisco and have reaped increases in employment numbers. The resulting influx of often-younger employees, hungry for the technology, business and research-and-development treasure trove in San Francisco, has changed the housing market quite a bit.
“Companies are very good with [knowing] what kinds of jobs work out with recruiting certain employees in urban and suburban areas,” Kern said. “It reflects in where companies move opportunities.”
As companies move into the second half of the year, growth will surge even more dramatically, Kern predicted. That’s because as business proves itself successful early on, as it has, companies are more inclined to increase hiring in the area. Kern said this will snowball into increased demand for apartments, higher occupancy rates and higher activity in retail and nightlife.
Kern lauded San Francisco’s success in promoting livability as a major city. Its current “urban renaissance,” he said, includes sustainable development as well as even a somewhat suburban quality of life, offering local employees amenities such as a nearby gym or grocery. The result is a job-heavy area that allows workers to live in a safe, environmentally conscious neighborhood within reasonable distance of their office, he said.
Incidentally, San Francisco’s rising rent growth is converging among all asset classes —renters by choice, who can afford to own a home but prefer renting, and renters by necessity, who are unable to afford to purchase a home. The report shows that in this city, either demographic usually prefers the flexibility with simply renting. It has become unrealistic to buy a home, with ownership responsibilities included, Kern said.
“What changed is the average profile of a renter is someone who is older than a typical, younger renter, has a highly mobile kind of job and earns a higher wage or average income than you typically see,” Kern said. “I think we’re going to see the same source of renters going forward.”
As the Bay Area’s housing supply continues to be squeezed, an apartment in San Francisco grows more desirable for all income levels. Going forward the city should continue to see an increase in renters by choice as both housing demand and employment grows.
Kern added that surrounding neighborhoods, such as Daly City and Oakland, also have become very attractive. Although San Francisco is feeling the strain of development pressure, there are still options nearby that perhaps have yet to see their prime.