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According to 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.
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 is San Jose posting an increase $134/mo. or 6.7% from $1,994/mo. to $2,128/mo.
Next up is San Francisco with $83/mo. or 4.4% from $1,888/mo. to $1,971/mo. Seattle is going strong despite
its surge of new supply projected to total around 12K units by the end of 2013. Portland ranks 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
that Austin is 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 the Austin market 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 Francisco occupancy rate is up by 1.2% from 95.6% to 96.8%. Despite the fact that Portland will 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%.
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