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Market Dynamics provides an examination of key influences on apartment industry performance. You’ll value the perspectives and insights from the MPF Research team, including Greg Willett, an industry expert widely known for his knowledge and expertise in the field. View Market Dynamics online or Sign Up for e-mail delivery as new issues are posted.

San Jose Rents Fall a Little More ... Really, It's Only a Little More
November 2, 2009
by Greg Willett

Effective rents in metro San Jose's apartment sector dropped a whopping 10.9 percent during the year-ending September, measuring change on a same-store basis. While there's no denying that number is particularly ugly, 3rd quarter brought the first signs that the bulk of the metro's rent cuts might be in the rearview mirror.

After effective pricing declined roughly 2 percent to 5 percent quarterly in San Jose from fall 2008 through mid-2009, the size of the downturn between June and September was held to the 1 percent mark. Only one submarket — the Palo Alto/Los Altos/Cupertino area — saw rents continue to plunge over the past quarter. Furthermore, several areas managed to post basically flat to slightly stronger rents. Pricing held essentially steady in Mountain View/Sunnyvale and South San Jose, and effective rents went up in Santa Clara/North San Jose.

As much as anything, 3rd quarter's slowing pace of rent cuts in metro San Jose simply seemed to reflect that operators are moving past the panic stage that had been in effect. There wasn't any meaningful shift in occupancy conditions over the past few months, since September's rate of 94.8 percent looked pretty much like June's figure of 94.7 percent … and like March's number of 94.4 percent as well as December 2008's level of 94.9 percent. Given there's not much shadow market product (for-lease condos and single-family homes) in San Jose that is priced comparably to typical apartment rents, attempting to buy occupancy from other forms of rental housing isn't going to work very well in this metro.

So, right now, there's not much that operators can do to push occupancy back to its normal level of 96 percent or better. They're simply going to have to wait out the return of some employment growth, with jobs now being cut at a pace close to 50,000 positions annually.

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