Silicon Valley's red-hot rental market shows signs of cooling

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Have Silicon Valley rents peaked? Third-quarter numbers suggest the past few years' skyrocketing prices may have stabilized.

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Nathan Donato-Weinstein: Real Estate Reporter- Silicon Valley Business Journal; Email | Twitter

Silicon Valley's rapid apartment rent run-up may be taking a breather.
Occupancy dropped and rent growth slowed as a flurry of new units hit the market, according to the latest figures from apartment tracker RealFacts.
Average rents for all unit types at Santa Clara County communities larger than 50 units flatlined - rising just $12 in the third quarter, RealFacts said.
The pause came as occupancy dropped to 94.4 percent, a 1 percent decrease compared to a year ago. In the key apartment market of San Jose, occupancy dropped 2.1 percent year over year, to 93.4 percent. Average rents in San Jose jumped $26 a month, to $2,015.

"Considering it's been above 95 percent for the better part of three-and-a-half years, this is fairly significant," RealFacts' Nick Grotjahn said of the occupancy decline.

A big part of the reason is supply, Grotjahn said. Developers have been busy in recent quarters building thousands of new units, especially in North San Jose, and many of those projects are just now hitting the market.

Joshua Howard, executive director for the California Apartment Association Tri County Division, said the moderation in leasing is good news for tenants and shows construction of new apartments can help cool off the region's overheated cost of housing.

"It's helping to address this issue of housing becoming less affordable to people," he said.
Still, rents in Silicon Valley are not cheap. Year over year, they increased 8.1 percent. That was less than the 10.5 percent increase a year earlier, Howard noted.
There is anecdotal evidence that landlords are beginning to offer more concessions such as free rent. But some concessions are expected during initial lease-up, observers said.