‘Bored In The Burbs’ Sentiment Could Fuel Multifamily Resurgence
The San Francisco Bay Area’s formerly hot multifamily market marked by skyrocketing rents and low vacancies was upended in March 2020 by the coronavirus pandemic, and the recovery remains slow into this year as tech offices have yet to reopen fully and thus draw back renters who departed the region’s core markets. Nevertheless, housing developers are approaching the coming years with an optimistic outlook.
“We've had an entire year of absorption in the Bay Area that's been deferred — of Gen Z and young people who come to the Bay Area for all of the jobs that we generate,” Forge Development founding partner Richard Hannum said at a Bisnow multifamily digital summit on Feb. 18. “So it's not just the people who went away. It's the people who didn't come.”
Hannum said that pent-up demand would become visible as young people bored living outside of vibrant urban areas like S.F. will start to repopulate in waves beginning this fall, leading to what he anticipates as “better than a V-recovery." Forge Development currently has about 1,000 units of workforce housing development planned for the pipeline over the next five years, much of it aimed at the middle of the income spectrum at 50% to 110% of area median income where demand will be massive, Hannum said.
“We will rebound because we have a deficit of housing,” said BRIDGE Housing CEO and President Cynthia Parker, who added that it is a great time to be working in affordable housing.
Other affordable housing developers are poised to take advantage of the down market to invest in properties and work with local governments to keep rents low while earning a property tax exemption. Others are exploring alternative construction approaches such as using cross-laminated timber and prefabrication to lower costs.
“I would be shocked if we go beyond two or three years of these lower rents as we come out of the pandemic, but we really need to take advantage of the opportunity while we can because it's not going to be there in the long term,” Jonathan Rose Cos. Managing Director Yusef Freeman said.
The economic downturn hasn’t impacted all parts of the Bay Area equally, and other parts of California like Sacramento and the Inland Empire have actually grown. While getting units leased in many buildings in S.F., Oakland and parts of Silicon Valley continues to be a struggle, some parts of the region became popular destinations during the pandemic. A report from Rentspree found that among California’s top five cities of LA, San Diego, San Jose, S.F. and Fresno, only S.F. experienced a drop in competition for rental properties between 2019 and 2020. Although cities outside California like Austin, Texas, and Reno, Nevada, picked up population from S.F.’s exodus, much of the migration occurred within the Bay Area.
“The Bay Area is dynamic; that's why it's such an interesting market to work in,” Lennar Division President for Northern California Jesse Herzog said. “You see the salacious headlines about rents down 30% in San Francisco, but I think CBRE reported over the past year in Contra Costa County rents were flat and in Solano County, they actually ticked up. We're seeing that some of our East Bay projects, in Fremont and in Milpitas, tenants that were living in the Peninsula actually started exploring the East Bay markets, chasing value and chasing space.”
Lennar has up to 1,000 units in the lease-up stage in parts of the East Bay and 500 units under construction in Emeryville. Other developers are also focused on the East Bay, like Alliance Residential, with lease-up occurring for a multifamily project in Oakland. Strategic Urban Development Alliance is working on two projects in Oakland, including a major mixed-use transit-oriented development near the West Oakland BART station. SummerHill Apartment Communities is preparing for future demand on the Peninsula with 1,000 units coming to Milpitas, Santa Clara, Mountain View and South San Francisco over the next 11 months and 268 units currently in lease-up in Burlingame.
“When I start to see Stanford, UC, other higher learning institutions dragging up and saying that they're leaving the Bay Area, then I'll start getting worried,” Strategic Urban Development Alliance Managing Partner Alan Dones said. “But in the meantime, we'll go through ups and downs.”
Dones spoke about being a kind of pioneer developing in Oakland neighborhoods before any established growth trends. It was an optimism that he said led to the emergence of vibrant areas like the city’s Uptown district. He said it is important to assess the “durability” of an area, places that have both potential and can withstand volatile cycles.
When residents return, there will likely be increased expectations for what types of amenities they will want. Investments in building technology, increased pathways for communication with residents and creating a sense of community will pay off in the future, Century Link Manager of Multifamily Development Zack Ebner said.
“Broadband internet for the longest time has been the No. 1 amenity over in-unit laundry, over trash pickup, over anything else,” Ebner said. “So there's a great value in investing in technology now before the people start to come back en masse.”