Berkeley, California makes sense for a number of real estate investors because of its proximity to San Francisco and Silicon Valley. When you own rental property in Berkeley, you’re leveraging the local economy and tenant pool of the city itself, but you’re also getting momentum from nearby hotspots for education, technology, and dozens of other industries.
The city is home to the University of California, Berkeley, which attracts a high number of students, faculty, and researchers every year, driving the demand for housing and commercial real estate. This is a diverse community that celebrates its different cultures, neighborhoods, and history. Real estate investors in Berkeley have historically done very well, thanks to that strong tenant pool, the high demand for great housing, and the constantly shifting demographics and trends in the real estate and rental markets that keep Berkeley desirable as a place to live, work, and study.
Let’s take a look at the current state of the Berkeley real estate market and make some predictions for 2024, and the coming years.
Surging Demand and Historically Low Inventory
Currently, the Berkeley real estate market is experiencing a shortage of inventory, which is driving up the prices of both residential and commercial properties. This trend is due in part to the recent migration of people out of major cities and urban centers in search of more room and outdoor space. The work-from-home trend has also proven to be more than a trend, so people feel like they don’t have to live minutes from their workplace anymore. Lots of tenants are choosing to live in cities like Berkeley instead of San Francisco, for example. They find a higher quality of life here and lower housing prices.
The shortage in housing for sale and for rent is due to that higher-than-normal demand. As home prices jumped to record levels over the last few years, many people sold their homes. This includes investors who decided it was a good time to list the homes they had been renting out in order to walk away with some serious earnings.
Both the rental market and the sales market are experiencing an inventory crunch, and that’s driving prices higher. For example, single-family homes and condos have seen a sharp increase in price, with the median home price in Berkeley passing the $1.2 million mark.
This is excellent news for you as a real estate investor. It means that you’re able to charge higher rents and attract the most qualified tenants. As we look towards 2024, we believe that dropping interest rates will make home loans more affordable. This may take some residents out of the rental market, loosening the demand a bit, but you will still have a strong pool of tenants willing to pay higher rental prices for great properties.
Changing Demographics When We Consider Tenants
There is no single demographic that we can talk about when we’re looking at Berkeley’s tenant pool. There are a number of retirees looking for rental homes in the area; as the older generation of homeowners begins to downsize into rentals, we’re expecting they’ll be looking for low-maintenance properties that are affordable and easy to care for. There are also the students, families, and young professionals who are becoming a significant force in the Berkeley real estate market. The student population, as we’ve mentioned before, is also a large part of the local tenant pool.
Co-living Arrangements as a Real Estate Trend
Another trend we’ve been watching is something that goes a few steps further than the traditional roommate situation. It’s co-living.
With the cost of living in Berkeley being among the highest in California, co-living arrangements are gaining popularity among younger residents who want to save money on rent and amenities. Co-living communities offer shared spaces such as kitchens, living rooms, and laundry rooms. We expect co-living arrangements to become even more popular in the coming years, resulting in an increase in demand for multi-unit buildings.
Smart real estate investors are getting ahead of this trend and buying intentionally designed properties that serve as co-living spaces. Renters are finding this option interesting, not only because it saves them money, but also because it contributes to a sense of community, which is a growing need in our otherwise isolated culture.
Focus on Sustainable and Eco-Friendly Homes
Believing in climate change and its negative effects is not controversial in Berkeley. This is a city that’s renowned for its progressive values and commitment to sustainability. Therefore, it’s not surprising that there’s a growing demand among tenants for eco-friendly and sustainable homes. Tenants want to live in responsible housing that won’t contribute to the degradation of the planet.
Going green is a huge trend that investors should consider for 2024 and beyond.
Builders and investors are likely to be more willing to create energy-efficient buildings as this demand grows. They’ll use green materials, invest in solar power, and embrace rainwater harvesting. New laws on the books require multifamily owners to provide organic waste recycling bins at their properties.
With the rise of eco-consciousness among buyers and renters in the coming years, we expect this trend to continue.
Considering Commercial Real Estate
It’s always been a good idea to diversify your investment portfolio, even that part of your portfolio that’s specific to real estate. If you’re primarily a residential real estate investor, it might be time to consider commercial real estate in Berkeley for 2024. This type of investing is more intertwined with the state of the economy, and you’ll need to be strategic about the type of property you buy and its location. Demand has been low in the commercial real estate sector, but we expect a noticeable recovery in 2024.
Whether you choose commercial real estate or something else, make sure you’re thinking about how to diversify your portfolio. It reduces your risk and provides you with opportunities to build a stronger and more profitable portfolio of assets.
The Berkeley real estate market is strong, and so is the rental market. We see no signs of slowing down as we move further into 2024.
If you’d like to talk about how the market is likely to impact your specific property or portfolio in 2024, please contact us at California Pacific Realty. We’d be happy to tell you more about how we see the market having an impact.
