Yardi Matrix: San Jose—Peak Market, Weak Appreciation

Silicon Valley remains the largest technology hub in the nation and the anchor of the Bay Area.

San Jose rent evolution, click to enlarge

San Jose rent evolution, click to enlarge

Silicon Valley remains the largest technology hub in the nation and the anchor of the Bay Area. The area continues to thrive as one of the nation’s most attractive markets for businesses to operate and as a destination for Millennials. However, after a huge run-up from 2014-15, rent growth is taking a time out, as the market is becoming unaffordable for its target demographic.

A diverse range of industries are fueling employment growth—among them professional and business services; education and health; and mining, logging and construction. The professional and business services segment continues to dominate the job growth in the metro, having made 14,500 new hires during the 12 months ending in November 2016. With large companies such as Google, Samsung, Toshiba, Apple and Facebook expanding their footprints and adding jobs, developers are keeping themselves busy, due to strong demand for multifamily units. Related Cos. received approval for City Place, at $6.5 billion the largest development plan in Silicon Valley’s history.

Multifamily development will stay robust in 2017. Approximately 40,000 units are in the pipeline, about 6,600 of which are expected to come online in 2017. Despite strong demand, the metro needs to tackle its affordability problem, a feat which may not be possible until strict construction guidelines begin to ease. Therefore, Yardi Matrix expects moderate rent growth in 2017.

Read the full Yardi Matrix report.