Though stable, rental market may heat up soon

Development applications in San Mateo, for instance, have spiked since it increased height and density limits in certain areas last November, but it will still take years for all of the proposed units to be constructed.

“There is a cliff coming that will be extenuated beginning in 2026. It may take awhile. We're not going back up to 0% interest rates,” Ressler said, adding that developers are waiting for better macroeconomic conditions, including a more stable 10-year Treasury note.

With continuously low inventory of for-sale homes in the county, coupled with elevated interest rates, renters who would have otherwise started purchasing homes are staying put, adding more pressure to the market.

“I also think that has helped prop up occupancy a little bit throughout the Bay Area, because you often see people move out to purchase homes — that’s the natural cycle — but you’re not seeing that,” Michael Pierce, president of Prodesse Property Group, said.

National trends paint a similar picture, with retention and renewals rates around 65%, Ressler said, when they would have typically been 40% to 50% pre-pandemic. According to Zillow data, one-bedroom apartments in San Mateo and Redwood City have stayed about the same compared to the same time last year — $2,860 and 2,764, respectively — however, two-bedroom apartments saw slight increases.

“Part of the high occupancy rates is because interest rates have stayed up, and based on the most recent [Federal Reserve] comments, it doesn’t seem like they seem to be coming down,” Pierce said.

The labor market and economic uncertainty may also have a cooling effect on rental rates, especially as widespread federal layoffs loom.

“The big thing we’re worried about is the long-term effect of what is happening at the federal level,” Pierce said. “In Menlo Park, we’ve got a huge presence of federal jobs there … so we’re waiting for the chips to fall.”