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East Bay Apartment Rent Growth to Cool as Capacity Expands POSTED ON OCTOBER 15, 2013 BY PUBLISHER IN INDUSTRY NEWS, RESIDENTIAL

East Bay Apartment Rent Growth to Cool as Capacity Expands

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OCTOBER 15, 2013

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By Joe Gose Ramped-up apartment development in the East Bay could

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OCTOBER 10, 2013 http://news.theregistrysf.com/east-bay-apartment-rent-growth-cool-capacity-expands/

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East Bay Apartment Rent Growth to Cool as Capacity Expands | The Registry

10/17/13 10:48 AM

begin to slow the rate of rent growth after three years of robust growth.

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Some 2,500 units are under construction in the market, and an additional 5,000 units are in the planning pipeline,

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according to Calabasas-based brokerage Marcus & Millichap Real Estate Investment Services. The anticipated supply increase of 2,100 units in 2013 would nearly triple the number of units added to the East Bay in 2012, said the firm in its third quarter Oakland-East Bay apartment report.

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Fremont and Essex Property Trustʼs 309-unit Connolly Station near the West Dublin BART station.

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To a large degree developers are pursuing projects near

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transportation hubs because transit-oriented developments (TODs) tend to serve community interests and traverse entitlement gantlets with fewer hiccups than other proposed developments, said Jeff Mishkin, first vice president and regional manager for Marcus & Millichap.

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In addition to Connolly Station, TOD development projects include Mill Creek Residential Trustʼs 126-unit North Main Apartments in Walnut Creek and AvalonBay Communitiesʼ 253-unit Dublin Station II. AvalonBay also is building the 94unit Archstone Berkeley on Addison near Berkeleyʼs Amtrak station, while SummerHill, a division of Marcus & Millichap Co., is developing the 300-unit Brio four blocks from a Walnut Creek BART station.

The East Bay supply surge, however, will push the average

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vacancy rate 60 basis points higher to around 4 percent by the end of the year, Marcus & Millichap predicted. Thatʼs still

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tight, but the average monthly rental rate of $1,575 at yearʼs

http://news.theregistrysf.com/east-bay-apartment-rent-growth-cool-capacity-expands/

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East Bay Apartment Rent Growth to Cool as Capacity Expands | The Registry

10/17/13 10:48 AM

end will represent a year-over-year increase of 3.3 percent, less than half the growth in 2012. Still, East Bay apartment rental rates have ballooned an average of 21 percent since early 2010, the brokerage noted.

That has worked out well for savvy deep-pocketed investors that bought land on the cheap when uncertainty still plagued the economy, said Mishkin, who is in the brokerageʼs Oakland office.

“They had enough guts and faith in the long-term market to take gambles,” he said. “Obviously, those gambles have really paid off.”

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Developers that have broken ground or that are about to begin renting still have reason to be optimistic, he added.

Job growth, for example, is improving after a slow start this year. Nonetheless, the wild card of rising interest rates could make development much costlier and riskier, Mishkin said.

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Rent and vacancy divergence is already emerging among various East Bay communities. While the Oakland-Berkley submarketʼs $1,882-a-month average rent in the second quarter represented a 7.7 percent hike over the same period a year earlier, East Contra Costa County apartment owners saw rent gains of only 1.5 percent. The average monthly rent in East Contra Costa County, which is also competing against an improving single-family housing market, was $1,125 in the quarter.

Meanwhile, landlords in five of the nine East Bay submarkets saw vacancies increase in the quarter. The Livermore/Pleasanton areaʼs average vacancy rate climbed the most – 120 basis points to 4.1 percent from a year earlier. On the flip side, the vacancy rate in Fremont dropped 10 basis points to a market-best average of 2 percent, and landlords raised monthly rents 6.7 percent to $1,617 from a year earlier.

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Despite predicting a slowdown in rental rates, Mishkin and others expect the East Bay market to remain in demand thanks largely to the marketʼs affordability when compared with surrounding Bay Area communities.

During a quarterly earnings conference call this summer, for example, executives with Palo Alto-based Essex Properties predicted that the East Bay would continue to benefit from

http://news.theregistrysf.com/east-bay-apartment-rent-growth-cool-capacity-expands/

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East Bay Apartment Rent Growth to Cool as Capacity Expands | The Registry

10/17/13 10:48 AM

annual rents spikes of around 10 percent in popular areas such as San Franciscoʼs South of Market Street (SOMA).

While some technology workers are receiving robust wage increases and can afford the escalating housing costs, others in the industry are fetching raises of only 2 percent to 4 percent, if that, said Essex CEO Michael Schall. That will require the technology “have-nots” to consider the East Bay as an alternative. “[The] East Bay will be a logical place to go because there are still some very good markets within the East Bay and theyʼre not as expensive as some of the better locations,” he

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Tagged AvalonBay Communities, BART, Berkeley, Contra Costa, Dublin, East Bay, Essex Property Trust, Fremont, Livermore, Marcus & Millichap, Mill Creek Residential Trust, Oakland, Pleasanton, San Francisco, SoMa, South of Market Street, SummerHill Apartment Communities, Walnut Creek

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East Bay Apartment Rent Growth to Cool as Capacity Expands | The Registry

10/17/13 10:48 AM

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