Surging demand by high-tech employees who want to live near work is triggering a record-breaking Silicon Valley construction boom for apartment and condo complexes. It's a phenomenon similar to the multiunit building frenzy now
in full swing in San Francisco.
"From San Francisco to the South Bay is the locus for a construction boom," said Jeff Mishkin, regional manager for Marcus & Millichap, a real estate services firm. "There are waves of demand in that area. Rents have risen; job growth is strong. People are making good money so they can pay (substantial) rents or can buy condos. It's a remarkable turnaround from zero to 1,000 miles an hour."
Santa Clara County leads the Silicon Valley building boom with 8,000 units under construction and an additional 3,100 in the near-term pipeline, said Garrick Brown, director of research for real estate services firm Cassidy Turley of Northern California.
"This is the largest amount of construction we've seen there in 20 years of tracking," Brown said. Assuming three-quarters of the new units are apartments -- with the rest being condos -- the new construction represents a 5 percent growth in a market with about 116,000 existing units, he said. "Ordinarily 2 percent would be considered strong growth," Brown said. "Anything over that is quite rare."
San Mateo County has only recently seen activity pick up but has more than 1,700 new units slated to be completed in the next two years, augmenting its 75,000 existing apartment units. Another 1,500 are in the planning stage. "It's a bit harder to build there" because of tougher regulations and more limited land supply, Brown said.
The new projects follow a lengthy construction hiatus during the financial downturn. Real estate developers, especially those focused on multifamily housing, "are rushing back into the market to fill a need and starting to build like crazy," Brown said. "There is tremendous pent-up demand that built up during the recession when nobody was building."
Builders are courting Gen Y/Millennials by making Wi-Fi widely available and including resort-like amenities such as fitness and wellness centers (massage, Pilates, yoga, aestheticians services), dog washing, parks and child-oriented features.
All those amenities come at a cost. Asking rents for new apartments are steep -- the smallest one-bedroom at the new Plaza in Foster City is about $2,600, and rents range up to $5,000 for its highest-end three-bedroom unit. But the new supply may help relieve price pressure for existing units. In addition, most cities require a proportion of new units to be offered at below-market rate for tenants at lower income levels.
"Over the past three years, the rental rate growth in the Bay Area has been phenomenal for landlords, but not so great for tenants," Brown said. "Now developers are hoping to cash in on young people with a more mobile lifestyle who are not looking to own."
Average rents across all size apartments in Santa Clara County are now just under $2,000 ($1,988), up 20 percent from their level two years ago, according to data from apartment-tracking service RealFacts. Rents in San Mateo County now average $2,166, up 25 percent from two years ago.
"We've got a dire shortage of affordable housing in the Bay Area," Brown said. "This will help, but indirectly. With so many units under construction, the
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