San Francisco Tops Apartment Market Again

By Linwood Thompson, senior vice president and managing director of the National Multi Housing Group for Marcus and Millichap Real Estate Investment Services Inc.San Francisco claimed the top spot of Marcus & Millichap Research Services’ National Apartment Index for the second consecutive year. While the metropolitan area’s large concentration of professional and financial firms is expected to result in job cuts, it ranked close to the top in almost all of the other measurements used in the index.The index, a snapshot analysis that ranks 43 apartment markets based on their cumulative weighted-average scores for a series of 12-month forward-looking supply-and-demand indicators, including forecast employment change, vacancy, construction, housing affordability and rents. Taking into account both the predicted level and degree of change over the forecast period, the index is designed to indicate relative supply and demand conditions at the market level.San Diego climbed six places to take over the No. 2 position in this year’s ranking. Throughout 2009, owners in the market will leverage tight conditions and still-low housing affordability to implement above-average effective rent growth. Washington, D.C., also moved up six places, to No. 3, as the government will continue to add workers and apartment construction is slowing. Los Angeles checks in at No. 4 this year; developers in the market are responding to limited household formation by easing deliveries, allowing vacancy to remain fairly healthy and supporting modest rent growth. Despite job cuts by prominent local employers, rent growth will continue in the Puget Sound region, and Seattle claimed the No. 5 spot.A sluggish housing market caused Oakland  to drop one place to No. 6, but Northern California’s East Bay remains in the top 10 owing to relatively low vacancy and above-average rent gains. San Jose fell three spots to No. 7. The metro area is expected to shed jobs again in 2009, but apartment construction will be minimal, which will limit the rise in vacancy.Orange County dropped one position to No. 8 in this year’s index. Layoffs in the local mortgage industry have largely run their course, and we expect the metro to record healthy apartment operating fundamentals. Vacancy in New York City, ranked ninth, will increase owing to deep cuts in investment-related job sectors, but the market will remain one of the tightest in the country. Portland, Ore., stayed in the No. 10 spot based on healthy expected household growth.(This article first appeared on the Commercial Property News Web Site)