How Tech Workers Shape the San Francisco Bay Area’s Housing Market
The region’s multifamily market recorded strong gains as tech workers continued to return to the region’s urban centers.
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The San Francisco Bay Area took a significant hit from the pandemic, with most economic indicators projecting a negative near-term outlook for the city. The closure of offices and the rise of remote work culture led by the tech sector resulted in a mass exodus of companies and residents alike.
Major cities, such as San Francisco and San Jose, were among the first ones to experience the effects of remote work and ongoing relocations. According to a report detailing San Francisco’s financial plan for the next five years, office activities accounted for roughly 75% of the city’s GDP before the pandemic, and nearly half of the employees working in the city commuted from outside the city.
The impacts of heightened relocations also became apparent in San Francisco’s multifamily market, as average asking rents fell by more than 25% from November 2019 to November 2020, the largest drop recorded in any large city across the U.S., according to the city’s five-year financial plan. The most significant decline in rents was registered in areas where tech workers used to live.
Recovery on the Horizon for the SF Bay Area
However, nearly two years after the coronavirus outbreak, the San Francisco Bay Area’s urban centers are beginning to come back to life, as major tech employers, such as Google and Facebook, are reigniting offices through in-person and hybrid work schedules. The return of office workers to the urban centers is also a catalyst for the region’s housing market.
San Francisco’s multifamily vacancy rate stood at 6.3% at the end of the first quarter, down 230 basis points on a year-over-year basis, according to a Marcus & Millichap report. This is the lowest vacancy rate recorded since early 2020, while absorptions hit 9,000 units during the past four quarters.
San Jose also recorded strong gains in the first quarter of 2022 as tech workers returned to the city. Every submarket in the metro experienced vacancy contractions of at least 100 basis points over the past four quarters ending in March. Additionally, every submarket entered April with a vacancy rate below 4%, Marcus & Millichap research revealed.
Tech employers are fast occupying empty units in the Mountain View-Palo Alto-Los Altos and North Sunnyvale submarkets. However, supply pressures in the Mountain View-Palo Alto-Los Altos submarket might slow down the momentum—the submarket will lead deliveries this year with more than 1,400 units, Marcus & Millichap data highlighted.
Rent Growth Is Still Behind National Trends
Despite notable growth across the Bay Area, San Jose and San Francisco are the only markets with rent growth still lagging behind pre-pandemic highs, according to a CBRE report. The firm’s first-quarter multifamily report found that rents in San Jose were 6.2% behind pre-COVID-19 rates, while in San Francisco, rates remained 10.2% below pre-pandemic highs.
Nonetheless, both cities posted significant year-over-year growth: Rents in San Francisco and San Jose were up 13.3% and 14.1% at the end of the first quarter, signaling that recovery is on the horizon in the Bay Area, despite being behind national trends.
Related Questions
What impact has the influx of tech workers had on the San Francisco Bay Area's housing market?
The influx of tech workers has had a positive impact on the San Francisco Bay Area's housing market. Vacancy rates have decreased significantly, with San Francisco's multifamily vacancy rate standing at 6.3% at the end of the first quarter, down 230 basis points on a year-over-year basis, according to a Marcus & Millichap report. Additionally, every submarket in the metro experienced vacancy contractions of at least 100 basis points over the past four quarters ending in March. Rent growth is still behind national trends, however, with San Jose and San Francisco being the only markets with rent growth still lagging behind pre-pandemic highs, according to a CBRE report. Nonetheless, both cities posted significant year-over-year growth, signaling that recovery is on the horizon in the Bay Area.
How has the tech industry's growth affected the availability of affordable housing in the Bay Area?
The tech industry's growth has had a significant impact on the availability of affordable housing in the Bay Area. According to a CBRE report, rents in San Francisco and San Jose were up 13.3% and 14.1% at the end of the first quarter, signaling that recovery is on the horizon in the Bay Area. Additionally, San Francisco’s multifamily vacancy rate stood at 6.3% at the end of the first quarter, down 230 basis points on a year-over-year basis, according to a Marcus & Millichap report. This is the lowest vacancy rate recorded since early 2020, while absorptions hit 9,000 units during the past four quarters. However, the influx of tech workers to the area has also caused an increase in demand for housing, leading to higher rents and a decrease in the availability of affordable housing.
What strategies have been implemented to address the housing crisis in the Bay Area caused by the tech industry?
The tech industry has had a significant impact on the housing crisis in the Bay Area. To address this, many strategies have been implemented. For example, the San Francisco Bay Area has implemented rent control policies, such as the San Francisco Rent Ordinance, to protect tenants from excessive rent increases. Additionally, the Bay Area has implemented inclusionary zoning policies, which require developers to set aside a certain percentage of units for low-income households. Finally, the Bay Area has also implemented a number of tax incentives, such as the California Low-Income Housing Tax Credit, to encourage the development of affordable housing.
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What are the long-term implications of the tech industry's growth on the Bay Area's housing market?
The long-term implications of the tech industry's growth on the Bay Area's housing market are positive. The return of office workers to the urban centers is a catalyst for the region's multifamily financing market. San Francisco and San Jose have both posted significant year-over-year rent growth, signaling that recovery is on the horizon in the Bay Area. However, rents in San Jose and San Francisco are still lagging behind pre-pandemic highs, according to a CBRE report. Despite this, the Bay Area's multifamily vacancy rate is the lowest it has been since early 2020, and tech employers are fast occupying empty units in the Mountain View-Palo Alto-Los Altos and North Sunnyvale submarkets.
How has the tech industry's growth impacted the rental market in the Bay Area?
The tech industry's growth has had a positive impact on the rental market in the Bay Area. According to a CBRE report, San Francisco and San Jose posted significant year-over-year rent growth of 13.3% and 14.1%, respectively, at the end of the first quarter. Additionally, a Marcus & Millichap report found that San Francisco's multifamily vacancy rate stood at 6.3% at the end of the first quarter, down 230 basis points on a year-over-year basis. San Jose also recorded strong gains in the first quarter of 2022 as tech workers returned to the city, with every submarket in the metro experiencing vacancy contractions of at least 100 basis points over the past four quarters ending in March. Tech employers are fast occupying empty units in the Mountain View-Palo Alto-Los Altos and North Sunnyvale submarkets, although supply pressures in the Mountain View-Palo Alto-Los Altos submarket might slow down the momentum.
What are the most effective solutions to the housing crisis in the Bay Area caused by the tech industry?
The most effective solutions to the housing crisis in the Bay Area caused by the tech industry are increasing the supply of housing, creating incentives for developers to build more affordable housing, and providing more rental assistance to low-income households.
Increasing the supply of housing is key to addressing the housing crisis in the Bay Area. According to a CBRE report, San Francisco and San Jose are the only markets with rent growth still lagging behind pre-pandemic highs. To address this, the Bay Area needs to increase the supply of housing to meet the demand of the tech industry.
Creating incentives for developers to build more affordable housing is also an important solution to the housing crisis. This could include tax incentives, zoning changes, and other measures to encourage developers to build more affordable housing.
Finally, providing more rental assistance to low-income households is an important solution to the housing crisis. This could include rental subsidies, rent control, and other measures to help low-income households afford housing in the Bay Area.