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The Future of Apartment Rent – by Dylan Simon

Posted on 01. Feb, 2018 by in all

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Want to know where the highest apartment rental rates are?  Where can you expect the most vibrant commercial real estate development in our region’s future?  You better familiarize yourself with Transit Oriented Development (TOD).

If you have your pulse on commercial real estate development, then you’re familiar with TOD.  The concept is simple – orient real estate development near transit lines allowing residents to access local and regional job centers, amenities and major transit hubs.  The concept is so ubiquitous – it has its own .org – tod.org. 

What Does TOD Look Like and How Will it Impact Apartment Rental Rates and Values?

If executed poorly, TOD looks like a train station in a vast wasteland of parking stalls.  When thoughtfully designed with a vision toward urban-scapes, TOD can transform a region. Whether you study Santana Row in Silicon Valley, Mockingbird Station in Dallas or Tysons Corner in DC,TOD has the ability to truly transform an otherwise inactivated, suburban location.

Many of our region’s future light-trail stations won’t open until 2021 or 2023. Why should we care today?  Two reasons.  First, at the pace of purchase, entitlement, development and stabilization – the horizon for new development is five to seven years.  Timing is perfect to focus on TOD.

Second, understanding the dynamics of future value today yields the highest returns.  Waiting until and “undiscovered” location is discovered provides inferior investment returns.  The winners in real estate are those who first pick tomorrow’s best locations.

Case Study – San Francisco Bay Area

I think we can all agree that San Francisco/Silicon Valley is a posterchild for vibrant, urban and suburban communities.  What if we understood where rental rates are the highest across its markets?

Thanks to Collier’s San Francisco office, we have a lens into which markets are performing the best throughout the Bay area and they are not all traditional urban downtowns.

There is no question that downtown San Francisco has some of the highest apartment rental rates in the nation.  One would hazard to guess that once you leave the city, those rental rates trail off quite a bit.  Yet, such a guess is quite wrong.  Proven by data pulled over 12 months ago, Berkeley’s apartment rental rates were higher than downtown San Francisco.  Walnut Creek (25 miles away from San Francisco) has rental rates rivaling Seattle’s Capitol Hill.

The BART System (Bay Area Rapid Transit) was formed in 1957, 60 years ago.  We’re lucky to have the time to study its formation and current impact on the region’s real estate market.  I can assure you, we don’t need 60 years of study to find out what will happen in our region.

Where to Invest

In my March 2015 blog post, 90 Degrees of Similarity, I compared the geographical layout of the San Francisco / Bay area market to Seattle’s.  Those similarities persist.  Both regions have thriving downtown cores, yet urban-suburban markets (think Redmond and Palo Alto) have transformative employers that punch above their economic weight class – spreading the reach of economic vibrancy beyond dense, urbanized downtowns.

The greatest opportunities exist in the proven path-of-progress locations where light-rail stations are destined, zoning provides for development and communities provide for great lifestyle.

The vibrancy that is occurring in the Bay area and across the nation, around suburban located TOD locations, provides a perfect roadmap to the future.  One of the most important concepts of investment is how accurately one can predict future dynamics.  Give us a call so we can turn our expertise into your profit!

 

Dylan Simon is Sr. Vice President at Colliers International / Seattle Multifamily Team.  For questions, call (206) 414-8575 or email him at Dylan.simon@colliers.com.