San Jose multifamily projects continue coming at a high clip as many other markets across the U.S. see apartment output slowed.
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While apartment construction is down 12% nationwide this year, the San Jose metro area is expected to double its apartment output from 2,912 last year to 5,829 in 2020, a rate not matched anywhere else in the country, according to RENTCafé.
The contrast comes as multifamily construction in most markets faces coronavirus pandemic-related slowdowns but as developer sentiment for San Jose appears to remain high. Nationwide completions dropped 7.5% month-over-month in August, according to the U.S. Census Bureau's latest residential construction report. San Jose, meanwhile, faces some construction timeline delays tied to health guidelines but is buoyed by its tech-heavy economy, according to Case Swenson, president and CEO of San Jose-based developer Swenson.
"Geography matters," Swenson said in an email. "With a robust, tech-anchored economy, the Bay Area remains one of the strongest real estate markets in the U.S."
After initial signs of regional departures coinciding with the introduction of remote work policies, San Jose's multifamily market appears indeed to have faced some level of headwinds. As other California markets like Oakland saw multifamily rents drop quarter-over-quarter by about 2%, San Jose rents dropped by about 4% in Q2, according to CBRE.
Swenson, though, cited the likelihood of tech employees earning better pay if located near their company's office as important, even if the option to work remotely is on the table at more companies.
Companies leaning further into remote work have already said as much. Facebook CEO Mark Zuckerberg said in May that in a decade as many as half of the company's employees could be remote but that option could come with a lower salary. Palo Alto-based software company VMware has already decided on a pay-cut structure for remote work, Bloomberg reported this month.
On top of falling rents, San Jose also saw negative net absorption of about 1,000 units, joining only a handful of markets around the country, like Los Angeles (negative 7,200 units) and New York (negative 3,600) in that regard, according to CBRE. San Francisco clocked a negative net absorption of 3,500 units.
Other metro areas on track to see year-over-year apartment output growth include Boston (30% more units), Philadelphia (23%) and San Antonio (20%), while those seeing the most severe dropoffs this year include Miami (53% fewer units), Denver (51% fewer) and Phoenix (37% fewer), according to RENTCafé, which uses Yardi Matrix data.
Because the Bay Area remains unaffordable to so much of its populace, "ultimately housing in San Jose and Silicon Valley is needed now more than ever," Swenson said. Through the second quarter, average asking rent for a studio apartment in the Bay Area remained above $1,900 a month, according to Kidder Mathews.
"Silicon Valley’s decades-long housing crisis has not just disappeared," Swenson said. "Pandemic or not, people need housing in the Bay Area, which means multifamily development needs to keep moving forward."
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