• Sun. Aug 7th, 2022

Multifamily real estate investments in Sonoma, Napa and Solano benefit from suburban migration

ByWillie M. Evans

Mar 25, 2022

Most of us in the apartment industry, like most other industries, have wondered if things will ever get better. In March 2022, positive signs are on the horizon.

First, Sonoma County feels the four-year statutory limitation on rent increases triggered by the 2017 Tubbs fire has expired. What does that mean?

Assuming the district attorney’s office accepts that rental property owners have more than paid their dues and endured four years with limited ability to recover rising costs, they can now follow the wording of the property control bill. statewide rent increases passed in 2019, which limits annual rent increases to 5% plus the regional consumer price index.

Then, among the many trends revealed during the Great Pandemic, we discovered that housing is in high demand. In the past year alone, we have seen single family home prices increase by more than 10%.

For that matter, gas prices, food prices, building materials, electronics, automobiles – everything rose more than 10% as rental housing was allowed between October 2017 and December 2021. by a stronger labor market, demand for rental housing has also increased . Sonoma County unemployment fell from 6.6% in December 2020 to 3.5% in December 2021.

Let’s see how the industry has fared in terms of rental demand, sales and new construction.


The “work from home” trend has been one of the clearest emerging from the pandemic, and this has translated into strong demand for all accommodations.

It’s no surprise that the highest demand in the rental universe is for larger units. Now, two years after the initial lockdown, some things have changed and some remain the same.

Overall demand rose almost instantly as renters fled dense housing closer to the cities of Oakland and San Francisco and the surge moved through Marin County into Sonoma County. Over time, some tenants have returned to cities and denser population centers, but many remain in Sonoma and Marin counties.

Let’s talk briefly about stimulus rent payments to households affected by COVID. While rent collection from occupied units has been in the 95%+ range, payments to landlords under the CTRA Act have lagged, with many landlords still waiting tens of thousands of dollars from agencies charged manage the disbursement of these funds.

Rental prices, vacancy and sales rebound

Unlike 2020, last year was a comeback year. The average rent for a new occupant of the same unit type increased 5% in Sonoma County. Our survey of 12,391 units showed a drop in vacancy from 3.3% in spring 2021 to 1.8% in fall 2021.

Transaction volume for properties with more than 10 units hit a low in 2020, with eight transactions totaling $67 million. Cap rates averaged 5.16% and unit prices averaged $238,000. Bouncing back in 2021, we achieved 15 sales (over 10 units) totaling $343 million.

New build and way to go

Our most recent data shows more than 550 units completed in Sonoma County in 2020-21, with more than 600 more under construction to be completed in 2022. Several hundred more are in the works as Sonoma County Sonoma is working to address the housing deficit.

Looking forward

In 2022, expect apartment rents to increase at a moderate pace as the economy continues to improve. The vacancy rate will remain in the 2% to 3% range as demand remains strong. A traditional challenge, residents buying homes could slow with interest rate increases expected in 2022.

Investment appetites for apartments should remain robust, and movement in cap rates will likely reflect the long-term yield curve.

Solano County

Solano County’s apartment vacancy rate now measures 3.5% and continues to hover around an all-time low and well below the 10-year historical average of 4.7%, according to CoStar.

The strong demand in 2021 followed the highest level of positive absorption recorded in the market in 2020.

Similar to Sonoma and Marin counties, remote work spurred by social distancing and societal restrictions to stem the pandemic has allowed many Bay Area tenants to look to new geographies to meet the needs of lodging. The flow of population from urban centers to more suburban and secondary markets was a nationwide trend that unfolded to benefit the Vallejo–Fairfield metro area.

Outside of purely indirect demand from more cost-sensitive tenants looking to Vallejo-Fairfield for affordability, Metro has demand drivers located within its borders that help solidify the Metro apartment market.

The US government is a major employer in the metro, as Travis Air Force Base in Fairfield employs more than 14,000 military and civilian employees.

Rent growth was commensurately strong due to internal and external (COVID-driven) demand, with year-over-year growth of 8.5%. Again, lighting has been increased by the request for larger units with additional office space in the two and three bedroom units.

Sales continue to be slow with 22 sales for Vallejo–Fairfield and average cap rates in the 5% range for properties over 10 units.

Napa County

Apartment rents in the Napa Valley market have posted an average annual gain of 4.6% over the past three years, according to CoStar. While 490 units have been delivered over the past three years (a cumulative inventory increase of 9.7%), nothing is currently in progress. The vacancy rate is 3.1%, down from a peak of over 8% in 2021 with a historical average of 4.8%

The Napa-American Canyon market saw four complex sales of more than 10 units in 2021. Average cap rates were around 4.25%.

Scott Gerber (415-927-8888, scottgerber.com) is president of NorCal Commercial, a Petaluma-based multi-family real estate brokerage firm.