Wednesday, October 19, 2016

Bay Area rental market cools

Bay Area rental market is really hot right now—but not in the way you might think.

Twitter - down 75% from Jan 2014
Go Pro - down 83% from Oct 2014
Fitbit - down 71% from Jul 2015
FireEye - down 86% from Feb 2014
Barracuda - down 48% from Apr 2015
Zynga - down 81% from Mar 2012
Rocket Fuel - down 96% from Jan 2014
Box - down 38% from Jan 2015

I am curious to see what will happen when this tech bubble bursts.

Over the past couple of years there has been a massive building of new apartment complexes. When the bubble bursts, these places are going to have to drop prices to keep full, and the older crappier apartments will have to drop rents even more. Some of the owners of these new complexes won't be able to cover their debt service with declining rents and will have to sell or to foreclosed on at a loss and the new owner will have less invested so will be able to support a viable business.

However, many of the older complexes may find they simply can't charge enough rent to cover expenses when the supply far outstrips the demand. These places may effectively shut down -- perhaps to be torn down eventually and, years later, be replaced during the next boom by new high end complexes. If this happens, it will at least improve the quality of the rental housing stock in the area so that's a bright side. The reduction in traffic will be nice also!

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