By Emily Landes on August 19, 2016 at 4:03 AM - SF GATE
Last year, as anyone looking for an apartment knows, we saw huge rent increases, with double-digit jumps throughout much of the Bay Area. But 2016 is a different story, with an average rent growth of only 3.7 percent projected for the San Francisco metro area this year, according to research from AppFolio.
The property management software company found that all of the action has moved east, and not just to the Oakland metro area, which at 4.2 percent has the highest projected rent growth in the Bay Area. (The San Jose metro area has a projected rent growth of only 2.8 percent for 2016.) At 11 percent, Sacramento has the nation’s highest rent growth, a “symptom of very short supply and strong job growth creating higher demand,” according to AppFolio’s VP for Product, Nat Kunes, who added that there are only 255 new units coming to the 2.2 million-resident market this year.
But after years of slow apartment development, San Francisco is actually expecting to see over 9,000 new units come to market in 2016, according to research from RentCafe. That boosts rental inventory by 126 percent over 2015’s numbers, according to the rental site. (Check out the gallery above for some of the luxe new rentals coming to market, and their starting asking rents.)
These newly built rental buildings tend to target the top of the market, which is where Kunes says the competition for rentals has been “fiercest.” In a recent AppFolio survey, nearly 80 percent of San Francisco respondents making more than $150,000 said that competition from other renters was the worst part of the rental process. But this may begin to change with the increased inventory. “Additional supply at the top of the market is one factor behind the overall slowing of rental growth,” Kunes said.
He pointed to data from earlier this year showing that Class A rentals (the buildings with rents at the top 20 percent of the market) in the city started their downward trajectory last summer, and bottomed out with actual rent decreases at the end of 2015. They are now up slightly, but Class A rentals in San Francisco are still well behind their less-expensive counterparts in rent growth.
That is a very interesting trend, especially given that most of these Class A rentals do not fall under the city’s rent control laws because the vast majority were built after 1979. When surveyed by AppFolio, almost half of all renters said they’d be willing to pay up to 5 percent more to stay in their current apartments. Nearly 14 percent were willing to pay between 6 percent and 10 percent more. (This year’s allowable increase for rentals that do fall under rent control is 1.6 percent.)
That being said, Foley points out that about a third of the San Francisco market is not willing to pay any more money for their apartments, which may account for some of the softness in the market as well. “Despite living in one of the hottest and most competitive rental markets in the country, one in three renters are willing to roll the dice with looking for a new apartment or simply giving up the bright lights and big city,” he said.