The top two rental markets in the U.S. are cities in Northern California: San Jose and San Francisco. On the east coast, New York comes in at third and D.C. is ninth, on Marcus & Millichap’s index of 44major apartment markets.
San Jose climbed three spots since last year due to job growth in Silicon Valley. Major tech firms’ investments in the area have strengthened San Jose’s desirability both among commercial and residential renters, especially as local employers are expecting to add 28,000 jobs this year.
Likewise, San Francisco is riding the tech wave—up five spots to second place on the list. Neighborhoods expected to increase in price include Noe Valley, Mission Dolores, Russian Hill, and Marina/Pacific Heights.
Formerly first place, New York has dropped to third, a little worse for wear due to ongoing financial sector job losses. Soho and Tribeca continue to see sky-high prices, while New Yorkers tightening their belts are expected to move to Queens and Brooklyn.
“Favorable demographics, the release of pent-up demand as young adults debundle from family and roommates, and increased renter demand due to changing attitudes towards homeownership—which has become increasingly difficult in this country—drove more people into renting,” said Hessam Nadji, managing director, research and advisory services for Marcus & Millichap. “Although the private sector created 1.8 million jobs last year, even greater job creation will be needed to sustain the white-hot levels absorption recorded after the recession.”
Each year real estate investment research firm Marcus & Millichap puts together an index of 44 major apartment markets in the United States and ranks them by a weighted formula of various indicators, including apartment supply and demand, economic growth, affordability, and employment. Taken together, the list represents the best and worst U.S. cities for those seeking apartments.
Movers and Shakers
A few of the markets on the Index have risen or fallen in rank upward by more than five points since last year. Among them are:
# 8: Seattle-Tacoma: UP 7
Technology employment surges in Puget Sound, rent growth is high.
# 9: Washington, D.C.: DOWN 7
“Lackluster job market” to blame for drop in rank, but few new constructions and many recent college grads will lower vacancy.
# 19: Philadelphia: DOWN 9
Stable economy, but outpaced by faster-growing metros. Government job cuts and college grads expected to offset each other in apartment demand.
# 21: San Antonio: DOWN 8
Below-average asking rent growth to blame for drop in rank. Energy sector and low prices to attract commercial investors.
# 33: Kansas City: DOWN 7
Low employment growth and low rent gains reasons for drop. Auto industry to drive lower-tier apartment demand.
# 36: Las Vegas: UP 7
Hospitality and tourism boosted Las Vegas’s position; further residential development will stall until demand rises. Bargain-hunters flock to this metro’s distress sales.
# 39: Indianapolis: DOWN 8
Fall attributed to below-average employment and rent growth. Return of manufacturing jobs to spur mid- to low-range demand. High-range properties will attract out-of-state buyers.
# 42: Sacramento: DOWN 7
Hit hard by California’s budget cuts, state employees downgrade or leave. Health care industry to add 2,300 jobs in 2012, and downtown area continues revitalization.