One of the immediate effects at the start of the health crisis, as most states took action to prevent the spread of the virus in March and April, was that construction activity slowed down. While deliveries did not meet initial expectations in all markets, it’s important to note that they only saw a 4.9 percent drop from the previous year, to more than 315,000 units, as states came out of lockdown, according to Yardi Matrix data.
In California, 31,168 units came online last year, 9.8 percent of the nation’s total rental completions. This year, as deliveries are likely to remain in the 300,000 units/year range throughout the country, California markets will likely continue to account for a significant share of new supply. As of January, 84,833 units were under construction throughout the state.
|Rank||Market||Units Underway (as of January 2021)||Prop. Underway (as of January 2021)|
|2||Bay Area – East and South Bay||24,019||103|
9. Central Coast
The Central Coast’s job market has been heavily impacted by the coronavirus pandemic, with all employment sectors reporting declines in the 12 months ending in November. Losses ranged from 19.4 percent for leisure and hospitality (17,100 jobs) to 0.4 percent for construction (200 jobs), with a combined total of 56,500 positions lost in the metro, down 9.7 percent year-over-year.
Deliveries were limited in 2020, down almost 80 percent to 75 units, the lowest level in more than two decades. The Paso Robles Housing Authority completed the fully affordable Oak Park 4 with the help of multiple construction loans totaling almost $25 million. Meanwhile, all 678 apartments underway are slated to come online by year-end. With the additional 105 units completed at the start of the year, 2021 is expected to reach the highest level of rental deliveries in the Central Coast in 15 years. The largest project underway in the metro—MBK Real Estate’s 318-unit Azure Apartment Homes—is projected to come online in the third quarter.
8. Central Valley
Similar to the Central Coast, the Central Valley’s economy has also felt the effects of the health crisis on its employment market, while its multifamily sector saw a boost from people migrating to less expensive parts of the state. In total, the metro lost almost 100,000 positions in the 12 months ending in November, fora 7 percent drop. More than a quarter of the jobs lost were in the leisure and hospitality sector, which declined 19.9 percent. But losses were reported in all other sectors, ranging from 17.2 percent (other services) to 3 percent (financial activities).
In terms of rental stock growth, the Central Valley performed well, despite a slight decline in the number of units completed in 2020. Last year, developers delivered eight projects totaling 1,215 units, down 17.8 percent from 2019. As of January, 2,072 apartments were underway throughout the metro, the bulk of which are slated to come online by year-end. In fact, deliveries are projected to increase 52.4 percent in 2021, if the pandemic does not result in delays. In the Wasco-Delano submarket, YK America is working on the 432-unit Grapevine Villa. At build-out, it will be the submarket’s largest community as well as the 11th-biggest multifamily property in the metro.
7. Inland Empire
With the Inland Empire’s multifamily sector reliant on shipping and logistics and with residents relocating from major metros toward less densely populated markets, multifamily demand increased last year.
A total of 2,853 units were delivered in 2020, a 40 percent uptick from the previous year. And as of January, an additional 3,240 apartments were underway throughout the metro. Sares-Regis Group is expanding its Inland Empire footprint with the development of The Monterey, a 442-unit project in Corona, Calif. At build-out, slated for the second quarter, the 20-building community will be the submarket’s third-largest multifamily property and the biggest one to come online in more than a decade.
Thanks to its robust government sector and lower multifamily rates compared to the more expensive California markets, Sacramento enjoyed moderate demographic and rent growth before the pandemic. But as the state has been hit hard by the current health crisis and ensuing economic volatility, Sacramento has also felt the impact. Some 70,000 jobs have been lost in the 12 months ending in November, equal to a 6.4 percent drop. Meanwhile, the unemployment rate rose significantly at the start of the pandemic, to a record high of 14 percent in April, the highest level in more than a decade.
But as some tech giants—including Microsoft, Amazon, Google and Salesforce—announced most employees will continue to work remotely after the end of the pandemic, multifamily demand remained solid in Sacramento. Completions saw an uptick of 89 percent in 2020 to 2,026 units, compared to the previous year. This January, developers were working on 23 projects totaling 4,701 apartments. The largest community underway—McCormack Baron Salazar’s 487-unit Mirasol Village—is set for delivery by the end of 2022.
5. Orange County
Last year was challenging for Orange County’s multifamily sector, following a sharp decline in investment interest and demand for new inventory the year before. The total sales volume reached a record low of $282 million in 2020, a 47 percent drop from 2019 and the lowest level in two decades. Deliveries also nosedived 56.3 percent to 1,745 units, the lowest level since 2013. With coronavirus cases starting to fall by mid-January and some 170,000 people having received the vaccine in Orange County as of Feb. 12, the crisis is expected to have a less-severe impact on the metro this year compared to 2020.
Out of the total 6,686 units under development throughout Orange County as of January, two-thirds are expected to come online by year-end. Five of the 10 largest projects underway are situated in the Santa Ana submarket, where 2,596 apartments were underway, equal to 37.8 percent of total projects under construction in the metro. Wermers Properties is working on the 603-unit Elan—the largest project underway in the metro—expected to come online by 2025.
4. San Diego
Following years of record performance, the metro’s transaction volume dropped 42. 2 percent from 2019, to $910 million. But investment volume was down in most of the country, especially in large metros with increased construction activity and a focus on upscale units. Meanwhile, the unemployment rate—which reached a record 15.2 percent in May—continued to improve in recent months, standing at 6.6 percent in November. But with cases rising in the last part of 2020, an increase in the jobless rate is expected.
For the most part of 2020, development activity in San Diego pushed on, with authorities taking measures to keep construction going. As a result, deliveries last year remained high, with developers completing 3,265 units in 2020, down 28.6 percent from the previous year. As of January, 8,300 units were underway throughout the metro. The largest of the 35 projects underway is Holland Partners’ 840-unit Town & Country, expected to come online next quarter. Located in the Kearny Mesa submarket, the upcoming four-building community will be the submarket’s second-largest multifamily property at build-out and the largest one to be delivered in more than a decade. Toward the end of 2020, the company also secured $24 million in financing for a San Diego affordable housing project.
3. San Francisco
Coming in at No. 3 is San Francisco, whose robust tech sector has contributed to upticks in the job market, as well as in the number of well-paying positions in the metro. This is not to say that San Francisco has not been impacted by the COVID-19 pandemic. More than 150,000 jobs have been lost in the 12 months ending in November, a 10 percent decline. Only one job sector, financial activities, was up during the same period, adding 2,100 positions. Meanwhile, the leisure and hospitality sector alone contracted by 62,000 jobs. The metro’s unemployment rate reached a record-shattering 13.2 percent in April and has since declined to 6.1 percent in November. However, that’s still a 370 basis-point increase year-over-year.
One interesting trend for the top three markets on this list is that, as a result of the current health crisis and an increasing number of tech companies deciding to allow employees to work remotely even after the pandemic, their residents began relocating to other California metros with less expensive rents or to other states. Developers seem confident that San Francisco continues to be a safe bet. As of January, they were working on 54 projects totaling 9,497 units. Essex Property Trust is developing two projects in San Francisco, including the largest one underway, the 537-unit 500 Folsom.
2. Bay Area – East and South Bay
Salesforce is the latest in an array of firms to announce its employees can continue to work remotely after most office workers will likely return to the office. It should not come as a surprise, as the Bay Area is one of the country’s most expensive office and rental markets. But in 2020, the metro’s employment market took a serious hit, following years of upward movement. In the 12 months ending in November, the Bay Area lost 70,100 positions, a 6.1 percent slide. While office-using sectors lost 4,500 jobs during the same period, as the professional and business services sector was up 0.9 percent, adding 2,100 jobs, others reported losses ranging from 3 percent for construction to 23.4 percent for leisure and hospitality.
Because California was one of the first states to impose restrictions meant to prevent the spread of the virus, the completion date for many projects underway in 2020 in the state was moved to 2021. As a result, deliveries this year are projected to surpass 18,000 units. As of January, a little more than 24,000 units were under construction throughout the metro, with the largest project being Irvine Co.’s 1,847-unit Santa Clara Square. At build-out, the seven-building community will be the Santa Clara submarket’s largest multifamily property and the metro’s sixth-largest property.
1. Los Angeles
In April, the metro’s unemployment rate skyrocketed from 6.6 percent in the previous month to 20.4 percent. The following month, it continued to increase, reaching 20.8 percent, the highest level on record. In the 12 months ending in November, Los Angeles lost 389,400 jobs, equal to an 8.8 percent decrease. The leisure and hospitality sector alone lost 140,200 jobs, for a 25.6 percent decline.
In 2020, multifamily completions in Los Angeles were expected to reach a record level—and they did. While at the beginning of the pandemic, the prospects were reserved, as developers had to adjust their plans, a total of 11,112 units came online throughout the metro, up 14.4 percent from the previous year. And in 2021, deliveries are forecast to continue to rise, with more than 25,000 apartments underway as of January.
The totals on the list consist of multifamily properties of 50-plus units researched by Yardi Matrix.