Jobs, Population Growth Sustain Demand in San Jose

A competitive economy is keeping the metro's unemployment rate down. With Silicon Valley continuing to expand, demand for rentals is likely to remain healthy, albeit less frothy.

San Jose rent evolution, click to enlarge
San Jose rent evolution, click to enlarge

Silicon Valley remains the nation’s top tech hub, as well as a strong multifamily market, although rent growth has been on a roller coaster ride. The market saw two quarters of double-digit growth in 2014. Then, at the beginning of 2016, rents rose 8 percent, before hitting seven consecutive months of negative growth. San Jose rents are now stabilizing, up 2.9 percent year-over-year through September.

A competitive economy is keeping San Jose’s unemployment rate down, at 3.8 percent as of July. The leisure and hospitality sector is leading employment growth, having added 7,400 jobs, a 7.3 percent year-over-year increase. Apart from corporate clients, this is due to companies such as Google, Tesla and Facebook attracting an increasing number of tourists to their headquarters. The technology sector, a Silicon Valley staple, continues to be the area’s main economic driver. And as major companies are relocating or expanding their footprint, the metro had more than 4 million square feet of office space under development as of the third quarter.

The multifamily pipeline is also strong, with 5,500 units under construction as of September, most of which are slated for completion in 2018. Transaction activity slightly softened this year, compared to 2016’s cycle high of $1.2 billion, as San Jose offers both the highest per-unit prices and the lowest acquisition yields of any U.S. metro. With Silicon Valley continuing to expand, demand for rentals is likely to remain healthy, albeit less frothy. Yardi Matrix expects a 1.2 percent rent growth in 2017.

Read the full Yardi Matrix report.