Can Palo Alto's rental market be seen as a barometer for the local economy?
That's what Palo Alto Realtor Leon Leong, who specializes in renting single-family homes, is finding. According to Leong, who compiles the asking rental prices of single-family homes in Palo Alto, demand has gone up in 2010.
In fall of last year, his compilation noted the average rent for a three-bedroom house was $3,100. Today, that average rent is up to $3,500. He said he was able to rent all of his May/July listings in less than four weeks.
Many of those new clients have accepted new jobs in the area.
"More organizations and companies in the area seem to be hiring," Leong said, "so more people need places to rent."
Eric Wiegers, senior vice president of communication for the California Apartment Association, agrees with Leong that the rental market and the economy are connected.
"As the economy goes, so does the rental market," he said.
However, Wiegers said that apartments in Palo Alto have not seen the price increases the single-family homes have. Apartment rentals in spring 2010 actually lowered by 2 percent from spring 2009.
According to RealFacts, a Novato-based firm that compiles information on apartment complexes with more than 100 units, large apartment complexes experienced the same 2 percent drop. Average rents in Palo Alto dipped to just below $2,200 in spring 2009. The prices fell more dramatically to under $2,000 in fall 2009, then rebounded to $2,159 in spring 2010.
But there are other factors that draw renters into Palo Alto. Although apartment rental prices are down, Palo Alto's rental occupancy rate is high at 97.9 percent. Normal occupancy rate is closer to 95 percent, Wiegers said.
Champa Jayasinsh, property manager at Tan Apartments on Arastradero Road, said the rates at Tan have stayed the same over the last year, but demand has gone up.
"From May through June of this year there has been a lot more traffic," she said.
The occupancy rates at Tan are around 98 percent, according to Jayasinsh, but she said she doubts a big increase in prices. "I think the market has stabilized, but it will remain static."
According to Leong, schools in Palo Alto are driving up the demand and keeping the occupancy rate high. Leong said that many of his renters are families looking to enroll their children in the Palo Alto public school system. Palo Alto class sizes have only increased from 20 to 22 students, while other schools in the Bay Area have increased up to 30 students per class, he added.
The discrepancy in home rentals and apartment rentals may be due to the high renting costs, according to Wiegers. RealFacts lists the average rent of a two-bedroom, two-bathroom apartment at $2,555. Leong's compilations list the average rent for a two-bedroom home at $2,700.
"If apartment prices were similar to single-family homes, then people will probably choose the home over the apartment," Wiegers said.
Palo Alto's high family population might contribute to more single-family home rentals than apartment rentals. Palo Alto has 11,000 children enrolled within the public school system, while the population is around 65,000. "If you have a family, it might be nicer to live in a home, too," Wiegers said.
The rental market usually experiences peaks in the spring/summer and troughs in the fall/winter due to families wanting to enroll their kids before the school year starts, Leong said. He added that even with these typical fluctuations, the rental market is still experiencing a rise and is optimistic for the future.
Local economy expert and Palo Alto resident Stephen Levy said he agrees that there has been job growth in the area, but it has been very slight. According to Levy's research at the Center for Continuing Study of the California Economy, Santa Clara County has added only 6,500 jobs to its 850,000 total -- less than 1 percent growth.
While the residential rental market can be used as an indicator of how well the economy is doing, Levy said a better indicator is the commercial rental market.
"Many people may want to move to the Bay Area," Levy said, "but that doesn't necessarily mean that there is a big influx of jobs. It might just mean that it is a desirable place to live."