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Ten-X: Bay Area Multifamily Top 'Sell' Markets In Country

A multifamily building in San Francisco

This might be a good time to consider selling multifamily assets in the Bay Area. San Francisco, San Jose and Oakland were listed as Ten-X’s top sell markets in its most recent U.S. Apartment Outlook report, which compared Q3 rents and vacancy rates to 2021 projections.

Bay Area cities are expected to face rising vacancies and flattening rent by 2021 following a flood of new supply from years of development. Ten-X’s models take into account a cyclical downturn in 2019-20 and a recovery by 2021.

San Francisco is particularly vulnerable to the cycle due to a heavy construction pipeline that is already impacting the market, according to Ten-X. Vacancy rates are at 4.5%, up 140 basis points from the cyclical low, and rates are expected to increase through 2020. Ten-X forecasts rents will contract by 7.5% over the recessionary period, which will result in severe net operating income declines.

Even though San Jose’s unemployment rate is lower than the national average, job growth among local employers has slowed over the last few years. More than 7,000 market-rate units are expected to deliver this year, which will likely increase vacancy rates and rents into 2021, according to Ten-X. Availability is expected to be 200 basis points above its peak and rents could contract 7% by 2021.

Oakland’s employment growth has dropped slightly in recent months and the professional/business sector has had flat growth. Rent growth slowed to 1.6% during Q3. With demand falling and increasing supply to continue, Ten-X expects vacancies to increase 200 basis points by 2021. Rents could drop 4% during the cyclical downturn, which would outpace the national average.