Commercial Real Estate News / General CRE / Q3 2022 Multifamily Real Estate Report: San Jose, CA

Q3 2022 Multifamily Real Estate Report: San Jose, CA

Published: 03-03-23 Category: General CRE

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

With an unemployment rate of 2.2%, San Jose’s labor market is booming. This number is well below the national average of 3.6%.

Adding over 26,000 jobs in the first six months of 2022, San Jose saw nearly every employment sector experience gain. It’s expected that by the end of the year, San Jose’s employment base will be at pre-pandemic levels.

Also worth mentioning: Google has decided to move forward with its $156 million development near Diridon Station, which will feature entertainment centers, offices, homes, restaurants, and retail areas.

With a growing economy and new development from major companies, San Jose’s multifamily market has the potential to be a strong performer in 2023.

General Area Overview & Demographics

San Jose, California, is the largest city in the San Francisco Bay Area and Silicon Valley. San Jose has a population of 1.04 million, the 3rd largest in California. It’s also the tenth most populous city in the United States.

Median Household Income & Education of San Jose

San Jose’s median household income is $102,000, higher than the state average and national average incomes. San Jose also has a high number of educated residents; 33% of all adults over 25 years old have at least a bachelor’s degree or higher.

San Jose boasts a diverse population, with 37% of its population identifying as Hispanic or Latino, 28% White Non-Hispanic, 24% Asian American and Pacific Islander, 8% African American, and 3% Multiracial/Other.

One of San Jose’s most beloved attractions is its eclectic downtown San Pedro Square Market, which is home to numerous local restaurants, boutiques, and shops. San Jose also has several art galleries, theaters, and other performance venues that host a variety of exciting performances throughout the year.

San Jose’s Mediterranean climate includes mild temperatures and low annual rainfall. San Jose typically has warm, dry summers with temperatures ranging from the mid-60s to mid-90s Fahrenheit. Meanwhile, San Jose’s winters are quite mild compared to other parts of the country.

Summary of San Jose Multifamily Real Estate Performance in Q3 2022

With the past year’s period of rental recovery, overall average asking prices and vacancy rates have improved across all apartment classes in San Jose’s multifamily market.

Employment at retail shops, restaurants, and bars continues to trail pre-pandemic highs, affecting some budget-conscious renters’ payrolls. A broader return to offices could restore some of those jobs in major workplace hubs.

While a few industries have maintained lower employment levels since the pandemic, a movement to return to offices is on the horizon and could boost a few lagging workplace sectors.

Multifamily real estate in San Jose’s submarkets currently sees tight vacancies.

Vacancy reached a long-time low of nearly 3% after seeing a net absorption of over 6,500 rentals year-over-year. Additionally, all apartment classes experienced record lows, dropping 200 basis points compared to last year.

What are multifamily rents like in San Jose?

Q3 2022 Multifamily Real Estate Report: San Jose, CA

The average monthly rent for San Jose multifamily real estate was at $3,010 in Q3, a nearly 2% increase from Q2 and one of the most expensive in the country.

All San Jose submarkets recorded rent gains at the beginning of Q3 2022, with more than a third having rents above the $3,000 mark.

Rents in the most expensive submarket went as high as $3,680, while the national average sits around $1,680 per month.

Purchase & Leasing Activity

Competition for multifamily real estate in San Jose has increased the average sale price to approximately $419,000 per unit.

At an average of 3.8%, San Jose currently has the tightest cap rate in all of the Bay Area. Buyers looking for initial yields that are higher than 4% found older Class C properties with entry costs below $5 million.

With California investors regaining their confidence in areas near major tech businesses, San Jose’s downtown and midtown areas saw an uptick in transactions.

Notable Multifamily Real Estate Deals in San Jose in Q3 2022

Several notable office deals and leases occurred in San Jose’s multifamily market.

Carmel Partners acquisition of One38 for $53 million; and
MG Properties & Oaktree Capital acquisition of The Platform for $320 million.

These are among other notable transactions for multifamily real estate in San Jose.

New Multifamily Real Estate Development Activity in San Jose in Q3 2022

Developers in San Jose struggled to maintain momentum throughout 2022, with less than 600 properties becoming available year-to-date.

The downtown and northwestern submarkets of San Jose were the focus of most of this activity, accounting for over 60% of those total units.

While affordable housing remains an asset in demand, most deliveries are centered around lifestyle renters.

Market Forecast for San Jose’s Multifamily Real Estate Market

Even with turbulent economic headwinds, San Jose’s multifamily market seems to be positioned for growth.

With companies like Google and Apple staying engaged and committed to the market, investors can expect to see demand and rents remain steady.

With the employment market trending upward and vacancies remaining tight, this San Jose multifamily market looks to hold promise for 2023.

Takeaways for Multifamily Real Estate Investors

San Jose’s multifamily real estate has all the indicators of a healthy and stable market. That said, while the market doesn’t show signs of experiencing significant losses, it’s not necessarily a bullish market.

Each investor will need to do their due diligence to investigate if San Jose provides the right opportunity for an investment move.