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Investors Undeterred as Silicon Valley Rent Gains Slow

October 1, 2013

Following more than two years of exceptional momentum in rental rents and occupancy levels, Silicon Valley’s apartment market is slowing to a more sustainable pace. San Jose was the tightest apartment market in the country in mid–‐2011 and it has held near the top of the occupancy rankings ever since.

Occupancy rates remain high, even as rent growth has slowed, and the market is projected to remain tight as new supply comes online.  Rising property incomes have attracted multifamily investors from across the country. Like the rest of California, underlying job growth has slowed in Silicon Valley. Yet investors are undeterred. In their annual Emerging Trends report, released in November by the Urban Land Institute and PwC, investors rank San Jose third in the nation for overall real estate prospects. San Jose places above top–‐‑tier coastal markets including Boston, New York City, and Washington, DC, and behind only San Francisco and Houston. As interest rates rise, strong investor demand will be critical for San Jose’s investment and property value trends. Equity and debt capital inflows into the market will ease the adjustment in cap rates and borrowing costs. The major concern is the potential for overbuilding. As of August, multifamily permitting for the year had reached to nearly 6,000 units, more than twice the volume the year before.

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