How Does Your Building Measure Up in Oakland’s Rental Market?
Over the past decade, Oakland real estate has experienced dramatic shifts — both highs and lows. From national headlines to silver screen depictions, social issues like gentrification, population growth, income disparity, affordable housing and homelessness have been everyday narratives across the Town.
With a whopping 7000 rental units entering the rental market, coupled with the City’s aggressive, tenant-friendly rent control policies, Oakland real estate is at the epicenter of these debates.
As multifamily brokers, landlords and property managers, we emphasize the importance of staying abreast of the market by proactively evaluating your assets to understand how your buildings measure up today, and how they can better compete in the future.
As Silicon Valley money moved up the Peninsula, spilling into San Francisco and eventually across the bay into Oakland, multifamily owners and investors saw an unprecedented influx of demand. High-income earners, typically in technology, flocked to the “Sunny Side of the Bay” in favor of value, more square footage, and warmer weather. As vacant units quickly absorbed — often sight unseen — rents soared to historic highs, giving landlords the upper hand with tenant selection during each vacancy.
At the time, many landlords (including our client portfolio) seized the market’s good fortune by allocating resources towards deferred maintenance, capital improvement projects and unit remodels. By staying competitive and appealing to the strong tenant base, it quickly became common practice to see an increase of $1000/month/unit, driving up NOI, cash on cash and overall property value.
But over the past 12-18 months, as new inventory has been introduced to the market, many of our clients who own buildings in neighborhoods like Rockridge, Adam’s Point, Cleveland Heights, Lakeshore and Grand Ave have experienced the beginnings of a market correction. Some of these indicators include longer lease-up phases; volume reduction in terms of interest and applications; and, on occasion, a lesser rental rate from the previous tenancy. Confused, clients ask:
“Aren’t rents going up? Isn’t there a housing shortage?”
The challenge is recognizing that Oakland’s tenant demographic now has an abundance of choice, in a variety of neighborhoods , that were previously regarded as inferior and less desirable.
These new developments in West Oakland, Downtown, Temescal, Mosswood and Uptown are shiny, state-of-the-art monstrosities, offering convenience to and from transportation; walkability to many of the popular shops, restaurants, and breweries; and all of the promises and features of luxury living, i.e. the buzz word of the moment — amenities.
Seven-thousand, amenity-packed “smart,” fully-integrated apartments with on-site swimming pools, Pelaton-equipped fitness centers, pet zones, and a variety of customer-centric services like housekeeping and laundry are estimated to enter the Oakland rental market in the very near, not-too-distant, future.
Adding to the complexity, the City of Oakland continues to adopt more aggressive, tenant-friendly rent control policies. Earlier this summer, the owner-occupy exemption was overturned, requiring all landlords to comply with rent control ordinances regardless of whether or not you live on-site.
The City is also proactively cracking down on owner-occupy processes via tenant eviction. In fact, we recently learned of a multifamily investor who purchased a building in the Grand Avenue area and evicted the tenants in order to owner occupy. After 32 months — four months short of the 36 month requirement — the investor vacated, listed the unit at market rent, and was subsequently hit with a lawsuit by the evicted tenants. Coughing up $350,000 was a rude awakening, to say the least.
So, how does your building measure up? And how can you stay ahead of the market?
We recommend taking inventory on your buildings. Evaluate APODs. Compare current rents vs. market rents. Identify ways to improve your building, attract the crowd, and compete. Get creative with unused space and your offerings.
With Oakland gaining in population & popularity, there are plenty of opportunities to maximize your assets, capitalize on an active market, and build your portfolio. We’re excited for what’s in store for Oakland and multifamily investments!