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Significant changes in Bay Area employment trends – Paragon
Our analyst at Paragon, Patrick Carlyle, provides these insights:
Analyzing new data (preliminary May numbers) from the CA Employment Development Department indicates a significant shift in Bay Area employment numbers. As seen in the chart below, looking at the 4 central Bay Area Counties, comparing the first 5 months of last year to the same period of this year, the change in the number of employed residents during each period went from an increase of 28,100 last year to a decline of 5000 in this past December to May.
(Santa Clara County continued to grow in number of employed residents, but at a substantially reduced rate from the previous year.)
This is the first time since 2009 that the number of employed residents in this area has declined instead of increasing, though this is still relatively short-term data and doesn’t prove a lasting, long-term trend.
Changes in employment figures, up or down, typically affect the rental market relatively quickly and dramatically – more so than the real estate purchase market – and that certainly appears to be the case in San Francisco, where softening demand and rents have been widely reported. The big increases in employment, and thus of population, of past years put immense pressure on rental rates over the past 5 years around the Bay Area (see last chart below). The decreases in employment we’re seeing this year are coupled with recent, increased rental inventory construction, albeit most of which has been at the very high end of rent rates.
Average asking rents have actually plateaued over the last 3 quarters (not illustrated below), which may disguise a decline in actual rent rates which have not yet showed up in the statistics.
