When first time buyers are locked out of the market by the unavailability of most low-down payment loans and tightening requirements, we start to see an increased demand for rentals. Apartment rental prices dropped sharply in 2001, had very little movement for several years, and have been gradually moving up over the past two years, while vacancy rates moved lower. Big apartment complexes are suddenly being sought by investors, and of the ten largest construction projects in Santa Clara County last year, six were apartment buildings.
Job growth and high salaries in the valley are key factors in the demand for high-end rentals. For complexes with 100 units or more, vacancy rates have fallen year-over-year from 4% to 3.2%, while average rents have gone from $1,647 to $1,788. While this type of investment has its risks, vacancy rates, unlike those in office and R&D buildings, almost never reach zero. No wonder these investments look appealing!
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