San Jose Rental Growth

San Jose, California has managed over the past few years to reach the top level in terms of rental growth. We see this remarkable achievement due to a number of factors which has greatly influenced the San Jose property management system in terms of how they set their rent.

Property Force, Inc. has found that the combination of high demand for apartments with fewer units available has allowed property owners to raise their rents over the past few years. While most of the US is still struggling with employment issues and an abundance of rental availabilities, San Jose is actually enjoying solid growth, especially in higher paying jobs. So as a result, Property Force has seen rents go up significantly over the past five years.

How San Jose Became Tied for #1 in Rental Rates

The reasons for this rise are somewhat unique especially considering that California was hit hard by the recent recession and housing collapse. However, San Jose, Santa Clara, San Francisco & Oakland Counties are all leading a national trend in terms of rental rates going up considerably over the past four years.

Nationwide, San Jose tied Denver in 2013 for the fastest rise in the average rental rate at a remarkable 7%. The pricing increase was also nearly as high in Portland, Oregon and Oakland, California at 6.6% each with San Francisco not far behind at 6%. Other large cities across the US also experienced a significant rise in their average rental rates as well from Seattle, Washington, Houston, Texas to Miami, Florida.

Property Force see’s the rise in nationwide rental rates as understandable given the circumstances of the housing collapse in 2008. The emphasis on home building instead of apartment complexes during the first decade of the 2000s led to a shortage of rental space when housing prices plummeted and became more difficult to purchase. However, San Jose is somewhat unique compared to the rest of the US for a few reasons, although most of them are rooted in the economy and personal choices of rental over purchasing property as reflected by its citizens.

Emphasis on Home Construction

It is our view that the housing boom and consequent bust was due to a number of factors, but the result was a surge in the building of homes in the first decade of the 2000s and a drop in the number of apartment complexes and rental properties during this time. In the particular case of California and the San Jose region, emphasis on new homes over apartments was particularly acute given the overall demand.
When the housing collapse hit, the result was a massive over supply of homes at rock bottom prices. However, because of factors such as economic uncertainty, far fewer people were willing to buy homes even if they had good paying jobs. This led to the rise in demand for rental property of which San Jose was not well suited to provide.

The Silicon Valley Effect

The creation of so many well-paying jobs in the region has reshaped the San Jose Property Management system by allowing them to increase their rents over the past few years to compensate for the high demand. It is estimated that the current rate pricing structure is about 40% above where it was in mid-2008 during the lowest point of the recent recession.

Compared to previous downturns in the economy, the 40% rise is noticeably higher and this is because the previous “dot-com bust” did not generate the employment numbers that are currently being seen today. Essentially, with an abundance of good paying jobs available and a preference for renting rather than purchasing, Property Force, Inc. expects the general San Jose Property Management industry to raise rents in response to this demand.

The Trend for 2014 and Beyond

While rental rates are still expected to rise, the surge in home sales may actually tamper the increases seen in recent years. The combination of the housing industry returning, the availability of homes on the market and more favorable loan rates have helped to fuel interest in purchasing property rather than renting.

In addition, new apartment complexes are being constructed to meet the new demand, although it will still take time before many of these new rental properties become available. Admittedly, we cannot foresee all events and changing directions in the economy, particularly the housing industry can have a profound effect all on its own.

However, rental rates are projected to rise at more than 4% for 2014 and 2015. Despite the increase in home ownership, the combination of a stronger economy, more high paying jobs becoming available and continued lack of supply in terms of rooms available will still put pressure on rental rates to rise for the foreseeable future.

Overall, we see that the San Jose Property Management position will still be a very profitable real estate investment for the foreseeable future.