As employment growth across the country continues to hold steady at around one percent per year, the San Jose job market is seeing gains of between three to four percent per year. A major reason for this, of course, is the metro’s infamous and booming technology sector, which is translating into sizeable gains for the multifamily industry.
According to Marcus & Millichap, it is estimated that 36,500 jobs were added in 2012, this in addition to 27,400 jobs that were created in 2011. Of the positions created in 2012, 4,500 were in the professional and business services sector, which includes most technology firms.
Because such positions are often high-paying, asking rents for Class A units rose almost as much as rents overall—to $1,796 per month. Average rents rose 4.5 percent to $1,575 per month, while Class A rose 4.3 percent. The most expensive submarket in the metro was Cupertino/Saratoga, where Apple Inc. is headquartered.
In terms of vacancy, rates continue to hover far lower than the national level, even rivaling blockbuster markets like New York and San Francisco. The overall rate came in at 2.6 percent in the third quarter of 2012, an improvement of 50 basis points year over year. Additionally, according to BizJournals.com, the metro currently sports the lowest single-family vacancy rate in the nation—a poignant illustration of just how vibrant the local economy is.
However, Marcus & Millichap notes that multifamily vacancy had been falling at much steeper rates between 2009 and 2011 before flattening out somewhat in 2012, indicating that new construction is beginning to keep pace with demand. Developers delivered 660 market-rate units between the third quarters of 2011 and 2012, which is a considerable increase from the mere 110 units delivered the year before.
The South Bay area of the metro is set to contribute a great bulk of the new product set to come online in the next few years with around 5,400 units currently under way, translating to nearly 5 percent of existing stock. The pipeline overall currently contains 9,800 units, with 1,400 slated for completion by the end of 2014.
Most impressive of all, the “Capital of Silicon Valley” posted one of the largest rent gains in the nation at the end of 2012, with asking rents soaring 6.1 percent to $1,607 per month and effective rents climbing 7.3 percent to $1,522 per month. The submarket with the largest share of the gains was the Mountain View/Los Altos area, with effective rents climbing 7.6 percent to $1,751 per month—rivaling the key submarket of Cupertino in both price and popularity.
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