Sonoma County apartments are like a cabernet

Sonoma County multifamily market

Complexes with six-plus units

Total sales: 2013: 40; 2014: 36

Average gross rent multiplier (GRM): 2013: 9.29; 2014: 10.89

Average price per square foot (psf): 2013: $149.48; 2014: $186.85

Complexes with 10-plus units

Total sales: 2013: 25; 2014: 21

Average GRM: 2013: 9.18; 2014: 10.78

Average price psf: 2013: $147.16; 2014: $180.21

Source: CoStar

Everyone seems to be scrambling to get into the North Bay rental market- tenants and investors alike.

In 2013 we saw the market rebound with double-digit rent growth and over 20 percent more property changing hands. The days of reading article after article about economic woes, struggling job markets, homes being lost to foreclosure and public agencies cutting back, reducing services and losing tax revenue are gone. Things have “done a complete 180.” Now we have articles about rents pushing the limits of affordability for the common man, scarcity of housing and single-family-home prices spiraling out of control.

But, is this market too hot? Is it “overpriced”? The answer lies, well, in the market. What we see in the coming months will be interesting. If the apartment market was a wine, what wine would it be? Probably a really good cabernet sauvignon wine from Lodi or someplace in the valley. (After all, these apartments are good but not glamorous.)

Sales activity is brisk, but besides rising prices, the real story is lack of inventory. Fewer properties are available for purchase and those that do come on the market, if priced right, sell within a month of hitting the market. These market conditions qualify as a seller’s market, and 2015 should see an increase in number of sales and in prices.

New construction

As the market heats up, the math behind building new units becomes more attractive. To be sure, the cities and county need to not only approve more apartment projects but encourage the construction of more units to keep the county in some semblance of balance.

As we speak, there are five projects under construction in Sonoma County totaling 558 units and a handful of small projects that are in some stage of planning. That’s a start, but nothing that will impact rents or housing to any degree.

Rent pricing

After growing more than 12 percent in 2013, Sonoma County rents again turned in a solid performance - 9 percent for 2014 - while vacancy dipped to all-time lows of 2.9 percent. Units are rented within days of notices to vacate being posted. Waiting lists are being kept and are growing. Average monthly rent for the county was $1,567, according to RealFacts

Interestingly, many owners still prefer to keep rents low for any of a variety of reasons. Sometimes it’s altruism or, perhaps, taking the path of least resistance with familiar longtime tenants. In any event, in the course of doing my job, I see neighboring properties with significant differences in rent. The day that I wrote this, I talked with such owners who had a $200–$300 differential.

Scott Gerber (415-451-2415, scott.gerber@dtz.com) is a San Rafael managing director of DTZ.

Sonoma County multifamily market

Complexes with six-plus units

Total sales: 2013: 40; 2014: 36

Average gross rent multiplier (GRM): 2013: 9.29; 2014: 10.89

Average price per square foot (psf): 2013: $149.48; 2014: $186.85

Complexes with 10-plus units

Total sales: 2013: 25; 2014: 21

Average GRM: 2013: 9.18; 2014: 10.78

Average price psf: 2013: $147.16; 2014: $180.21

Source: CoStar

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