Investment Trends: Redwood City, Out Appreciating Silicon Valley Since 2014

By Ken DeLeon | Founder and Rob Parish | Realtor®, Attorney, Buyer Specialist

The fundamentals of residential real estate in Palo Alto, Menlo Park, and Los Altos haven’t changed over the past five years: Declining Inventory + Strong Demand = Rising Prices.

What has changed is the increasing awareness by business leaders, local governments, and frustrated homebuyers that declining affordability profoundly affects the quality of life in the Bay Area. The deceptively simple answer is for homebuyers to expand their search radius. Once this epiphany occurs, their next question to their Realtor® is inevitable: “Where would you recommend?”

For the past few years, DeLeon Realty has been encouraging clients priced out of other markets to consider prime neighborhoods in Redwood City because of their extraordinary potential for appreciation. This article will look at some of the reasons for Redwood City’s exceptional recent appreciation and continuing potential.

1. The Numbers Tell All

As a preliminary matter, let’s quantify the current market faced by a family moving to the Peninsula. The average price of a single-family home in the area’s premier communities (through July 1, 2017, per the MLS) continues to rise dramatically:

Palo Alto:
2017 Average Sales Price: $3,394,590
2017 Price/Sq. Ft.: $1,568
% Change Since 1/1/14: 22.24%

Los Altos:
2017 Average Sales Price: $3,178,429
2017 Price/Sq. Ft.: $1,290
% Change Since 1/1/14: 22.29%

Menlo Park:
2017 Average Sales Price: $2,425,534
2017 Price/Sq. Ft.: $1,214
% Change Since 1/1/14: 17.52%

In contrast, the median price for a home in Redwood City is much more affordable, even after adjusting for stellar appreciation of 37.5 percent since January 1, 2014! The strength of this market is confirmed by the steady increase in prices for single-family homes over the past five years.

The key factors driving this appreciation include the creation of a vibrant downtown district, major private investments in both office space and residential units, and improving schools. DeLeon Realty tracks these activities and regularly advises clients on a neighborhood-by-neighborhood basis about the continuing appreciation potential.

2. Build, and They Will Come

As part of a comprehensive downtown redevelopment plan, Redwood City set some ambitious goals in 2011 to become a “developer-friendly, transit-oriented” community: 2,500 new residential units, 100,000 square feet of retail, 500,000 square feet of new office space, and 200 new hotel rooms.

While such plans are standard practice on the Peninsula, Redwood City went one step further. It established an umbrella environmental review procedure to meet those goals so companies could sidestep the usual lengthy approval process. After six years of building and investment, Redwood City has nearly met all of its goals for office space and apartments at an extraordinary pace (see “Are the good times in Redwood City’s downtown development boom about to end?” BizJournals.com, February 2017).

And, Redwood City didn’t stop there. The city’s General Plan includes nine other “Precise Plans” targeting the El Camino Real Corridor, North Main Street, the Inner Harbor, and Marina Shores Village, among others.

3. It Is the Forgotten Northern Outpost of Silicon Valley

While many regional commuters only think of Redwood City as the place where the carpool lane ends on Highway 101, the city was the original home of one of Silicon Valley’s three founding companies: Ampex Corporation. As recruiting new employees became more challenging, Redwood City established itself as an attractive alternative because of its central location on the Peninsula, relatively low housing cost, and higher availability of office space.

Stanford University was certainly a patron of this renaissance, having purchased the old Ampex campus 12 years ago with the intention of building 1.5 million square feet of office space to relieve overcrowding on the main campus. Shortly thereafter, Stanford Health Care took over the former Excite/@Home buildings and created outpatient clinics.

On May 17th of this year, university leaders and local government officials broke ground on the next phase: four new office buildings to house 2,700 administrative staff currently scattered all over Stanford’s main campus. As Redwood City’s Mayor John Seybert noted at the groundbreaking ceremonies, the campus will have an “an incredible ‘ripple effect’ and [the community] is just getting started” (see “Stanford University expands to Redwood City,” The Mercury News, May 2017).

Other companies of all sizes are following suit:

  • Google bought close to a million square feet of space in the mammoth Pacific Shores Center.
  • Box, Inc. leased 334,000 square feet of office space downtown.
  • Wealthfront and Pebble both elected to build out office space at 900 Middlefield Road.
  • Kahuna left Palo Alto in 2015 for 42,000 square feet of office space across the street from Courthouse Square.

The combination of affordable office space, a thriving downtown, and easy commute access is compelling.

4. Schools Are Improving

Savvy buyers are also looking for one more component: good local schools. There is no doubt that excellence in education is a major reason for the strength of the real estate markets in Palo Alto, Los Altos, and Menlo Park, which is why DeLeon Realty has given hundreds of thousands of dollars to local schools and student-related charities.

While Redwood City’s schools serve a diverse population and have improving test scores as a result, the local school districts have adopted a unique blend of bond initiatives, public/private partnerships, and magnet schools to meet the broad needs of Redwood City’s population. Indeed, one of the premier elementary schools in the entire state is found in Redwood City: the North Star Academy. This school (grades 3-8) is open to any child residing in the district who has the necessary test scores and grades.

Similarly, Sequoia High School is one of the only 95 public high schools in California offering the International Baccalaureate Program. This is a world-renowned program that has established a worldwide standard for academic rigor and personal development, which many families believe better prepares children to handle both college-level workloads and global issues.

While an in-depth review of the local schools is beyond the scope of this article, DeLeon’s buyer specialists know the local schools and are prepared to help clients find programs that will meet their families’ needs. Moreover, for many who are choosing to send their children to private schools, the cost of 12 years of private education can be partially or completely offset by the difference in housing values between Redwood City and its much more expensive neighbors.

5. DeLeon’s Two-Year Forecast Is Promising

Redwood City’s robust housing market is linked to the local economy. As long as Stanford University and the major companies in Silicon Valley continue to compete for top talent, the influx of homebuyers will continue. Because younger buyers value proximity to work, school, parks, and urban amenities, appreciation in Redwood City will outpace its more remote and more expensive neighbors. DeLeon Realty is forecasting six to eight percent growth per year, with the higher end of the range reserved for the most central locations and the attendance areas for the community’s top-performing schools.

 


 

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