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SAN FRANCISCO-Bay Area apartment vacancy edged up and rental rates fell slightly in the first quarter as no signs of a near-term economic recovery showed up on the horizon, according to the latest report from the brokerage firm Marcus & Millichap.

Marcus & Millichap Regional Director Jeff Mishkin tells GlobeSt.com the biggest story of the past 18 months in the Bay Area apartment market has been the resilience of transaction demand and the strength of sales prices in the face of a softening market.

The demand is being driven by record low interest rates and the poor performance of alternative investments. Mishkin says the only thing that has changed is that the continued economic downturn is beginning to raise vacancies and affect properties’ income, making buyers a little more wary of overpricing because it’s clear that rental rate growth may no longer be an easy option for increasing income after an acquisition.

“Although vacancies have been on the rise, the Bay Area’s traditional housing affordability gap and a lack of significant new multifamily construction have kept the market relatively tight,” says Mishkin. “Buyers are wary of properties where sellers seem to be testing the waters with unrealistically high pricing, but properties that are priced correctly are moving quickly.”

Looking forward, M&M President and CEO Harvey Green says once the economy shifts into a higher gear, Bay Area markets are primed to bounce back strong except for the Silicon Valley, whose recovery will be extended due to the fallout in the high-tech industry.

In San Francisco, the 67,000 lost jobs over the past two years continued to push up vacancy, which climbed another 0.3 percentage points in the past two months to hit 5.7%, according to the report. Correspondingly, rental rates have fallen nearly 5% in the past year to the current average of $1,650 a month. However, as Mishkin mentioned, the median sales price per unit climbed 15.56% over the past 12 months to $181,154 per unit as of March 31.

In Oakland, vacancy rose 0.2 percentage points in the first quarter and one full percentage point over the past 12 months to 5.8% today. Average asking rents in Oakland fell 0.9 percentage points in the first quarter and 3.31% over the past year to $1,198 per month. Despite that, like San Francisco, the median sales price is up 12.55% over the past year to $107,916 per unit.

In the San Jose MSA, which lost 100,000 jobs over the past two years, vacancy fell 0.2 percentage points in the first quarter to 6.4%. Average asking rents fell 1.46% in the first quarter to $1,352 and are off 6.63% over the past year, “but this is a substantial slowing from the precipitous drop recorded in 2001,” states the report.

The median sales prices, meanwhile, after topping out in the range of $160,000 per unit in 2000, has fallen 6.29% over the past 12 months to $128,289 per unit. Ric Russell, regional manager in Marcus & Millichap’s Palo Alto office says that with all this in mind, San Jose-area “investors are locking in low interest rates to be in position to take advantage” whenever the rental market does finally rebound.

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