The Bay Area is a notoriously difficult area to build in, but developers are on track to get a big block of new apartments across the finish line over the next two years.
Nearly 18,000 units are slated to come online in the Bay Area in 2020, while another 15,000 or so units are scheduled to finish in 2021. In all, expected completions for the next two years – about 33,000 units – amounts to about half the deliveries this region has received in total since the current economic cycle started nearly 10 years ago.
Historically, the Bay Area has been a notoriously tough building environment with limited site availability, high development costs and burdensome regulations. In turn, completions in this cycle have remained limited compared to other large markets. But by local standards, builders have been more active in this cycle than they have in previous decades.
While all three Bay Area markets are expected to see some of the nation’s biggest increases in supply in the near term, there seems to be a shift happening in where all that new supply is headed. While San Francisco and San Jose have been the traditional targets for new supply in the Bay Area, Oakland is now emerging as the area’s development leader.
Back in 2015, San Jose accounted for a little over half of the Bay Area’s total supply volume, while San Francisco’s share was a third. Meanwhile, Oakland accounted for only 13% of the product share that year. Fast forward to 2019, Oakland overtook its neighbors, receiving about 42% of all new deliveries in the year. Volumes in San Francisco and San Jose have pulled back to around 30%.
That pattern of growth in Oakland should continue in the coming two years, and the market should get as much as 45% of the product share by 2021.
The Oakland/Berkeley submarket has taken over as the top neighborhood for building activity, as more than 6,400 units are on the way. San Francisco’s SoMa submarket has some 4,000 units under construction, while 2,000 units to 2,600 units are rising in Central San Jose, Santa Clara and Fremont.
Paving the way for increased construction activity, demographic and economic drivers are still secure in the Bay Area. As a result, apartment demand and occupancy have been solid across all three markets. However, operators have pulled back on rent growth in the past four years, as increased volumes of new apartment supply have increased competition and limited price expansion in local product.
For more information on the Bay Area apartment market, watch the recent RealPage Asset Optimization webcast, Up Close and Local: Bay Area Market Update.