The San Francisco Business Times published an article this week about the slowing growth of Bay Area apartment rents. According to the article apartment rents in San Francisco grew by 9.9% in 2012. Apartment rents in the East Bay increased by 6.9%. A leading apartment advisor predicts that growth will be 3.2% in San Francisco and 3.3% in the East Bay.
Home Ownership and Supply
I believe two factors are contributing to the slow down in rental growth. First, we have seen the residential real estate market take off and a lot of buyers have gotten off the sidelines and are buying homes. This means that a lot of renters are moving to be homeowners. Second, a number of new rental projects are being constructed. Both of these items are increasing the supply and causing rental rates to slow.
Bay Area Apartment Owners
Existing apartment owners have benefited from the increased rents (the exception may be in rent-controlled areas like San Francisco, Oakland, & Berkeley). Cash flow is up and sales of apartments are at record low cap rates.
What does the tapering of rent growth and the increase in interest rates mean? Well, it probably means that the market is reaching the peak of the value cycle. Interest rate increases mean that buyers will have to pay less for properties to cover rising financing costs.
If you have questions about your apartment complex, please give me a call at (925) 385-8798.