Starting in August 2015, we saw a drop in demand for apartment rentals. This slump lasted about 3 months, albeit we are not out of the weeds yet, by any stretch of the imagination. While demand his picked up since the slump, now we have ourselves a supply problem. Vacant units have been piling on top of each other for several months and now we have an unquestionable surplus of units for rent, at the slowest time of year to rent apartments. Scott Safadi believes that this situation is by no means dire and that we can expect to see a stable market by the summer of 2016, with rents remaining steady from that point on for at least a couple of years, barring any major world or economic event.
Scott Safadi has observed roughly a 15% reduction in Bay Area asking rents over the course of the last 3 months. The reason for this appears to be a hiring slump in the tech sector, which has been the sector driving rent increases over the past several years. In fact, nearly 90% of our applicants since 2010 are employed by tech companies. This is somewhat reminiscent of 2001 in the sense that the rental market is being largely driven by one particular sector. On the other hand, tech is not just one sector when you’re talking about the Silicon Valley; it is THE sector. Additionally, the tech world of 2001 and the tech world of 2015 are vastly different. While 2001 was primarily comprised of fledgling companies trying to become something or trying to be purchased by the likes of Google, the tech world today in the Silicon Valley is one of many juggernauts, like Google, Apple, Linked-In, Facebook – the list could go on and on. People often forget about companies like Roku and Netflix as well; if you’ve heard of it and it’s tech, it’s probably based in the Bay Area. That all being said, Scott Safadi does not anticipate a massive bubble burst like we saw in 2001, nor does Scott Safadi anticipate any major rent slides. This 15% correction was probably overdue and can be seen as a good thing. A sign that the market is ready to stabilize. If it continued to rise double digits for years upon years, Scott Safadi would be seriously concerned about a true bubble. For now, things appear reasonably secure, but it all depends on jobs, at the of the day.