Bay Area cities are hot again—if applications from Generation Z renters are any indication.
The San Francisco and San Jose metros were two of the fastest-growing destinations for college-aged and post-grad transplants in the U.S. in recent months, according to real estate consulting firm Yardi Matrix.
Interest from 17- to 25-year-olds in San Francisco and East Bay apartments doubled between 2020 and 2021, the fastest rise in the U.S. Applications from students and young professionals jumped 50% in San Jose over the same period. Most of the growth came in the last six months of 2021 as COVID-19 restrictions eased.
“What we’re seeing is the move back,” said Doug Ressler, senior analyst at Yardi Matrix. “The San Francisco Bay Area has just seen a significant growth in renters, particularly Gen Z renters.”
Bay Area rents tumbled in the first year of the COVID-19 pandemic as offices closed or people worked in skeleton shifts and remote work took hold. Many young renters decamped to family homes, remote cities and rural towns, seeking cheaper rents and a different lifestyle.
High-end apartment complexes throughout San Jose, San Francisco, Oakland and Silicon Valley offered steep discounts and enticements to win tenants. Apartment prices plummeted, especially in luxury buildings.
But pre-pandemic rents have returned in many cities. The median price of a two-bedroom in San Jose rose 14% year-over-year in February to $2,491, grew 2% in Oakland to $1,930, and jumped 15% to $2,710 in San Francisco, according to Apartment List. The median U.S. rent has risen nearly 18% in the last year.
East Bay landlords recently have seen applications picking up, said Krista Gulbransen, executive director of the Berkeley Property Owners Association. But the decline in international students due to pandemic restrictions has opened more vacancies around UC Berkeley, she said.
Market prices in many neighborhoods have not returned to pre-pandemic levels. It might take three years to see a full recovery, Gulbransen said. “Picking up? Yes,” she said. “Robust? Not yet.”
Homeownership is generally less vital to young professionals than older generations. A recent survey by Apartment List found Generation Z respondents half as likely as baby boomers to say homeownership was extremely important for their personal success. Survey authors believe Gen Z renters may shift their attitudes about home ownership over time.
Rob Warnock of Apartment List said the survey did not reveal a dramatic, cultural shift in feelings about home ownership. Rather, he said, younger generations are driven to renting because cobbling together a down payment and buying a home is too expensive for many.
“More renters expect to rent longer, if not indefinitely,” Warnock said. “The vast majority of it is affordability.”
Even millennials have been more ambivalent about buying homes than their parents and grandparents, the survey found.
Millennials, generally between the ages of 26 and 40, are mainly responsible for growing demand in the real estate market. But the Apartment List survey found them also far less likely than older generations to highly value home ownership.
The rental demand in the Bay Area has been driven by the return of college students and young professionals, Ressler said. Demand started picking up as colleges and universities re-opened for in-person classes and has been rising ever since. The most popular apartments have been older, bigger and less expensive units ideal for having roommates.
The Yardi Matrix survey analyzed more than 3 million rental applications across the U.S. and filtered out multiple submissions from single applicants. San Francisco saw the greatest increase in young renters in 2021, with about double the previous year’s total. Jersey City, NJ, saw a 95% increase, followed by growth in Manhattan (63%), Philadelphia (61%), Boston (59%), Arlington, Va., (55%) and San Jose (52%).
Some of the growth in young renters seeking new city apartments is due to the impact COVID-19 had on jobs and education plans, the survey noted. Unemployment hit young workers in the service industry, among other jobs, hard.
But colleges and universities have reopened, tech firms are bringing workers back into the office, and restrictions are being lifted on shops, bars, restaurants, theaters and clubs—breathing new life into Bay Area cities.
Ressler expects Gen Z demand to accelerate in May and June. “They like the cities,” he said. “They want to be back.”
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