What apartment types are in demand?
The Bay Area is covered with rain in January of 2023, and new apartment buildings are popping up like mushrooms. Real estate developers are becoming more careful before making a decision to bring more housing to the market. And people who are being priced out of the Bay Area are celebrating this shift in supply and demand.
The current state of affairs is that new apartments are on sale! As an architect who knows how much it costs to build an apartment building in the Bay Area today, I wonder if the developers are breaking even. I am also curious how we can make better decisions at the beginning of the project ahead of the financial cycles and the market trends.
So, as the rain goes on, my husband and I visit 7 apartments in Alameda and Oakland, CA, to see what is available on the market and what is in greater demand. Here is the summary of our findings for real-estate developers who are looking for opportunities, followed by a detailed description of each new apartment complex.
(A side note: we selected Alameda and Oakland because they are close enough to San Francisco for someone to commute once a week, the weather is warmer and the cost of housing is slightly lower than in San Francisco. The school district in Alameda is excellent, making it one of the best locations for families in the Bay Area. Oakland, on the other side, is one of the cultural centers and melting pots in the Bay Area, attracting residents for its diversity and liveliness).
Apartments in high demand have these three features:
1. Good Location
Location, location, location! It is oh-so-true, especially now that we are in the paradigm shift of working remotely. Alameda offers activated and lively downtown, waterfront, parks, and proximity to shops. With its low crime rates, it is perceived as a safer place, compared to Oakland. Following the pandemic, Alameda is a hot location for people who do not need to commute for work anymore.
Oakland is great for commuters, but it has some safety issues, especially in the empty downtown areas. Selecting most sites on the southern side of Alameda is a great bet for a developer. One has to be more careful when looking for a location in Oakland because of volatility.
2. Small Size
While all housing types are in shortage in the Bay Area, studios appear to be the hottest commodity of all. Even tiny studios of less than 200 SF are renting out close to the market rate of a regular studio or even one-bedroom. If you research the number of studios on the market, you will find that there aren’t many of them. Their price point is attractive to many people who live alone because they can live in a better neighborhood and in a better quality unit.
The tiny units are more expensive than having roommates, however, for many young people, they mean an opportunity to have their own place. Studios will only go out of favor when all the growing housing demand is fulfilled in the Bay Area, and people can afford a larger unit. Meanwhile, studios hit the market and get rented right away in desirable locations.
3. Quality Renovation
There are two reasons to consider a renovation:
Rent control. If you invest in an old apartment building in The Bay Area and renovate it, there is more interest in these units because of rent control. Tenants are willing to pay more upfront to live in a rent-controlled unit, rather than pay for less expensive new units where the rents may be raised rapidly.
Good design commands high rents. If you bring high-quality design into your renovations, you can rent your housing out at a higher price point. Better design does not always mean higher renovation costs, but it does mean hiring a professional designer. They will design to the aesthetic that is both appealing at the moment and will keep its appeal with time. To increase your returns, renovate and invest in a professional designer. Need help? Contact us for access to our in-house designers.
What if there are no apartment buildings to purchase and renovate in a good area? In that case, you may have to build from scratch. Or, for a more creative and sustainable approach, look into adaptive reuse (taking an underutilized building of a different use, such as offices, retail, or industrial, and repurposing it into housing). In either case, doing a feasibility study before moving full steam ahead is vital. You will find out how many units you are allowed to have on the site, what the costs will be, and what rates of return you may expect on your project.
Bay Area Apartments Review
The first place that we look at is a 1-bedroom apartment in an older but recently renovated apartment complex on the shoreline in Alameda. All the units are 1-bedrooms and all of them have the same price, no matter the view and the floor. The amenities are limited: a small seasonal pool, a small workout room, and a laundry room. The apartment is laid out 1970s-style, with narrow short corridors, shallow closets, carpet, and popcorn ceiling. The color palette is light and peasant.
Overall, we give this apartment a B. It could have gotten an A with a unit that had a complete contemporary remodel. It is absolutely OK not to have too many amenities when you are located next to the beach and the retail district. It is also owned and operated by a family who lives in town, making it more personable and the labor of love. Another big plus is that because this is an old building, it is under rent control, making it very appealing to long-term renters.
Unit Condition (B)
Unit Design (B)
Building Condition (B)
Building Design (B)
Building Amenities (B)
Building Location (A)
Property Management (A)
Price (Market)
Parking (Yes)
Rent Control (Yes)
Next up is another apartment complex on the shoreline in Alameda. We viewed a 1-bedroom and a 2-bedroom. It was a stark contrast to the previous building that was family owned and cared for. Although the building and the units have been renovated, the renovation was done without any professional designer input, and it shows The color palettes and the design features selected do not add any value to the property and are not in line with the current apartment design trends. The property managers were friendly, but there was a little bit of “The Office” feel to it.
We give this apartment complex an overall C. It could have gotten an A if there was a professional designer engaged in the renovation, and if the property management culture was improved.
Unit Condition (B)
Unit Design (C)
Building Condition (B)
Building Design (C)
Building Amenities (C)
Building Location (A)
Property Management (B)
Price (Way Over Market)
Parking (Yes)
Rent Control (Yes)
We continued driving along the shoreline of Alameda, and our next apartment complex was a definite A. The building complex was designed before the postmodernist era and had very good “bones,” as we architects say. A lot of work needed to be done to bring this complex up to a new level, but the developer and their design team did an excellent job. The units have been renovated inside and out, with a sophisticated design and a holistic community vision. Amenities have been renewed, and brand-new amenities, like shared and private office spaces, have been added. The management team is young and professional, giving off a startup vibe. The property got a lot of value out of the renovation, which justifies a higher price point.
We give this a “well-done!” This complex has studios, which the previous two do not have. The property manager said that when they get on the market, they get rented out very fast. The studio sizes here are a standard 500 SF +/-. Perfect for one person and a little tight for a couple.
Unit Condition (A)
Unit Design (A)
Building Condition (B)
Building Design (A)
Building Amenities (C)
Building Location (A)
Property Management (A)
Price (Over Market)
Parking (Yes)
Rent Control (Yes)
Saving the most interesting Alameda-based apartment complex for last, we were excited to see this one - a recently-completed adaptive reuse conversion of a historic brick warehouse into housing. The amount of effort, time, and resources that go into making a project like this happen is beyond your typical housing project.
If you have a soft spot for historic industrial buildings in developing neighborhoods, you will love this one. The architects in us were super excited, but the parents and residents in us were a little bit on the fence. The feel of the neighborhood is very industrial: not much is happening there yet and it is not within walking distance of any fun things that Alameda has to offer. The prices are high compared to other places, and the amenities are not all working yet. Lastly, this is the first building we see that is recently built, and there is no rent control on it, making it more risky for residents who are not ready for rapid rent hikes.
We only give this complex a B, but we know that it has potential to turn into an A, with more people moving in and the prices going slightly lower than they are currently set at.
Unit Condition (A)
Unit Design (A)
Building Condition (A)
Building Design (A)
Building Amenities (C not all functional currently)
Building Location (B)
Property Management (A)
Price (Over Market)
Parking (Yes)
Rent Control (No)
Our first apartments to look at in Oakland were ZO. The design and the quality of these buildings exceed anything we have seen before. Spacious lobbies and corridors with engaging views, high ceilings, beautiful fixtures and finishes, as well as generous architectural expression with a sober rhythm. This building will have a long life and will be enjoyed by many people.
The construction began before the pandemic, when Oakland downtown was at its pre-pandemic peak. Many new buildings were built with beautiful lobbies and polished public space, and many storefronts were open with gourmet food, fashion, and art. Located only two blocks away from a BART station and a few blocks away from Lake Merritt, this complex has everything one might want from an apartment.
Unfortunately, everything that Oakland worked hard on in the last 20 years took a step back. Walking out of this beautiful apartment, you see homelessness and shuttered businesses. ZO adjusted to the situation by offering lower rates, and we are sure that in the future, as businesses reopen and the downtown becomes vibrant once again, this is going to be a highly desired place to live in. For now, we also give this project a B+. Not to forget - there is no rent control in this building!
Unit Condition (A)
Unit Design (A)
Building Condition (A)
Building Design (A)
Building Amenities (A)
Building Location (C due to slow post-pandemic recovery)
Property Management (A)
Price (Below Market)
Parking (Yes)
Rent Control (No)
Next up is a very different, but also very unique and pioneering project. Nook on Valdez popped up in my neighborhood about 7 years ago. The rents have always been unbelievably low in the market. Why? The studios that are offered are under 200 SF, so the developer can provide affordable rents. All of a sudden, someone who had to share an apartment with roommates, was be able to afford their own place. A big bravo to keeping rents low to the Nook team!
There are a few design features that take away from the experience. For instance, the corridors are very narrow and the ceilings are very low. The shared room is tiny and the entrance is awkwardly located on the side. Some of the units have very high ceilings, and a tiny studio with a very high ceiling does not work well - one almost wants to put the apartment on the side, to seem more regular. Lastly, the windows are tiny. Perhaps they were designed this way for safety, but the interior experience of the unit could be much improved with larger windows.
This is a great case study for the micro studio projects and what we’ve learned is that a little more generosity in some areas and a little less in others can work better than cutting all the corners for costs. We are giving this complex a well-deserved B+ for innovation.
Unit Condition (B)
Unit Design (C)
Building Condition (B)
Building Design (B)
Building Amenities (B)
Building Location (B)
Property Management (A)
Price (Below Market)
Parking (Yes)
Rent Control (No)
Operated by the same team, Electric Lofts are the big brother of the Nook. Same idea for micro units, but with more generosity in public spaces, overall better level of design, and quality of finishes. It seems that the developer learned from the Nook example and created a better product for the market.
The price of studios in Electric Lofts is higher than the Nook, but it is still very reasonable compared to most locations in Oakland. If I were to design the next generation of these micro units, I would make them slightly larger and avoid the high ceilings in the micro units, unless they can be used as functional space and not a feature. The Electric Lofts do deserve their A for the innovation, quality, and price point.
Unit Condition (A)
Unit Design (B)
Building Condition (A)
Building Design (A)
Building Amenities (A)
Building Location (A)
Property Management (A)
Price (Market)
Parking (Yes)
Rent Control (No)
Oakland has many more interesting and new apartments on the market. We did not tour them at this point, but in the future, we look forward to seeing more and writing about our impressions, lessons learned, and opportunities for future development.
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