The North Bay apartment market continued its downward slide in the last quarter of 2002, with Marin County apartment rents declining an additional 4% and Sonoma county rents dropping almost 5% over the year.
In southern Marin, including the cities of Sausalito, Mill Valley, and Tiburon, rents have dropped nearly 25% from the highs of the dot-com boom in late 1999 to the first quarter of 2003. Since 1999, rents have gone through a series of declines as companies have increased layoffs and young workers have relocated out of the Bay Area.
In Sausalito, a one bedroom view apartment with close proximity to San Francisco and Silicon Valley job markets commanded as much as $1,800-$2,000 per month up until late 1999. Now the same apartments are being advertised for $1,200-$1,300 per month and take sometimes months to fill.
In Tiburon, one desperate owner is offering what he calls “rolled back pricing” and free heat for six months to entice prospective tenants to call the rental hotline. A long, descriptive message urges callers to visit weekend open houses and see the “luxury view apartments at rock bottom prices.”
These kind of marketing efforts by landlords were unheard of during the go-go years in the late '90s and early 2000.
In the central Marin community of Greenbrae, apartment owners are advertising “move-in discounts” that include one month's free rent and free utilities for several months. They are trying to rent spacious two bedroom, one-and-a-half bath townhouse-style apartments for just $1,550. The same apartments were renting three years ago for nearly $2,000 per month.
The Marin County apartment vacancy factor now stands at nearly 6%, up from 1.2% in 1999. Median rent for a two bedroom, one bath apartment was $1,700 in the first quarter of 2001. In the last quarter of 2002, median rent for a Marin county two bedroom had dropped to $1,550.
The apartment building boom in San Rafael's downtown area is partly responsible for the increasing vacancy rate in Marin, coupled with the stagnant economy and the outflow of workers from the Bay Area who are seeking employment in other states.
Sonoma County rents
Although rental declines have not been as severe in Sonoma County, they are still real, according to one owner. He says he has been forced to knock $100 off the monthly rent of his two bedroom apartments that he was renting for $1,200 a month nearly two years ago.
A more pressing problem in Sonoma County is the vacancy factor, where owners are reporting vacancies as high as 10% in the larger complexes.
A recent apartment survey by RealFacts, an apartment survey group headquartered in Novato, found that occupancy rates were continuing to drop throughout the western states. The study further noted that “the fundamental softness in the market shows no signs of abating in the near future.”
Industry analysts that once predicted a turnaround in the apartment market at the end of 2003 are now predicting that landlords will see no relief to soft rents until sometime in 2004.
Investment market
While rents are soft in the North Bay, apartment sales activity continues to be extremely active. Even with more inventory available compared to the past two years, sales are continuing to occur as investors flee the depressed stock market and put money into real estate. This activity, along with low interest rates, has helped maintain sales prices almost equal to the market highs of 2000.
Many of the buyers are first-time owners of apartment properties or trade-up buyers taking profits on smaller properties and moving up to larger investment properties.
How long will this trend continue? Most likely, as long as interest rates are low, even soft rents will not deter buyers from investing in rental properties.
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Katherine Higgins is an investment broker at RE/Max of Southern Marin in Mill Valley specializing in apartment sales in Marin and Sonoma counties; 415-381-7385 or katherine@khiggins.com. |