Entering the second half of the year, farther submarkets of the San Francisco Bay Area and South Florida, along with select secondary markets, represent sleeper locales where developers have the ability to achieve desired yields — making it easier to justify and finance future project starts.

These submarkets and secondary locales have all experienced at least a 6 percent rise in rents spanning the past 12 months, with a number seeing double-digit rises in both rents and revenue growth.

At the same time, these locales sport sub-4 percent vacancy rates and have a fairly minimal development pipeline. Additionally, a few of these markets are providing existing owners with some of the nation’s best return on investment (ROI).

San Jose and San Francisco currently rank as the two top markets for job growth, but are unaffordable when comparing the proportion of annual income to median rent. This being the case, it can be assumed a number of individuals who work in these cities will look outside these markets when renting.

Nearby submarkets that appear able to absorb units that would deliver several years down the road include Oakland, Salinas, Santa Rosa and Sacramento. (Sacramento sits roughly 90 miles inland from San Francisco.)

Sacramento, which recently ranked 18th in the nation for overall ROI growth, sports an occupancy rate of 96.4 percent and recently saw year-to-year rent growth of nearly 9 percent.

A pipeline of projects is being proposed in the city’s midtown and downtown areas. Adjacent cities such as Rocklin and Folsom also see proposed deals.

Heading into the summer, Oakland led the nation in year-to-year rent growth at 14.8 percent — largely due to its 3.3 percent vacancy rate. At least one residential high-rise is currently being proposed in the market.

With vacancy rates of 2 percent and 3 percent, respectively, Salinas and Santa Rosa represent other close-in submarkets of San Francisco that appear primed for 2016/2017 completions.

Low vacancies have driven rents up significantly of late, with Salinas seeing a 9.7 percent bump in year-to-year rents and Santa Rosa an 11 percent spike.

Email Erik Pisor.

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