Bay Area Apartment Market Report – Paragon Commercial Brokerage

The San Francisco Bay Area Apartment Building Market

The Paragon Commercial Brokerage – Reis Reports
2nd Quarter 2013 Market Update

“Welcome to what is arguably one of the worst cities in America to be a renter, but among the best to be a landlord and apartment investor. San Francisco led the top-50 U.S. metropolitan areas in average rent growth during the second quarter, jumping 7.8% to $2498, while Oakland was No. 2 and San Jose was in fifth place. The rent increases have investors rushing to purchase existing properties.”

The Wall Street Journal, July 17, 2013, “Bay Area Rally Sends Rents Soaring”

The West Bay area of metro San Francisco (SF, Marin and San Mateo counties) continued to boom through 2012 and into 2013, even as it became increasingly expensive. The 136,980-unit market-rate investment grade San Francisco apartment market has rock bottom vacancy and high rents. While the pace of population growth is not high in the densely developed and expensive West Bay, it is still solidly positive at an estimated 9,770 in 2012 and a forecast 11,270 in 2013. Even higher increases are predicted for later years by Moody’s It seems people will pay any price to live in San Francisco, as long as a growing number of advanced, high paying jobs are available.

The East Bay apartment market (Alameda & Contra Costa Counties) also tightened further in early 2013, although rent gains remained more moderate.

The Bay Area has a long history of boom and bust dating back to the Gold Rush of 1849 and continuing through the dot-com bubble and bust little more than a decade ago. When the previous tech boom ended, not only did the number of jobs plunge but so did the population. Moody’s does not expect a repeat. Instead, employment is forecast to keep growing at a somewhat slower pace, surpassing the 2000 employment peak some time in 2015. Reis predicts a leveling off of the current strong conditions in the apartment market, rather than a frenzy followed by a collapse. The well timed arrival of new supply will keep rent gains in check, while pent up demand will ensure the units are absorbed, barring an unexpected economic shock from outside the Bay Area.

The first three charts below pertain to San Francisco County alone and then only those listings and sales reported to MLS. The specific numbers should be considered approximate, but the trend lines apply to and illustrate the overall Bay Area market: low supply + high demand = higher prices.

The supply of investment properties available to purchase as listed by SF MLS has dropped by over 50% over the past 3 years.

While supply has plunged, demand has soared as measured by this statistic, percentage of listings accepting offers.

The supply and demand dynamic, super-charged by improving economic conditions, rapidly rising rents and extremely low interest rates, has led to a rapidly appreciating market. This chart tracks average dollar per square foot values.

In the analyses below, the San Francisco Metro Area is comprised of San Francisco, San Mateo and Marin counties, while the Oakland-East Bay Metro Area consists of Alameda and Contra Costa counties. When mixing many buildings of very different size, quality and location, all the statistics should be considered very generalized and approximate. The county of San Francisco itself typically has significantly higher rents and values than the other counties.








In the West-Bay SF Metro Area, the Civic Center/Downtown submarket led the rest in units sold over the past four quarters at 1,370, and dollar value of sales at $266 million. Among submarkets with substantial sales price per unit, Marina/Pacific Heights leads in price per unit at $478,442. Generally speaking, as the market appreciates, Gross Rent Multiples are heading higher and Cap Rates lower.







For the 3-county, west SF Metro Area, 2,300 apartment units are expected to complete construction in 2013, followed by 3,600 in 2014. The three years to follow are expected to see less new supply, but still more than 1,000 units completed in each year. Whatever number of apartments is built, however, Reis expects net absorption to match it as pent up demand is met. The only question is at what rent level.



In Alameda and Contra Costa counties, apartment developers are re-starting projects shelved during the recession, and the under construction total has risen to about 1,760 market-rate units. There are also 1,226 subsidized and senior housing units under construction. Relatively few units, however, are expected to complete construction this year, allowing the vacancy rate to fall to a low point of 2.5% at year-end.






The 15,771-unit Civic Center/Downtown submarket has a first quarter 2013 vacancy rate of 3.5% and an average asking rent of $1,604 per month, the lowest among eleven submarkets according to Reis. The 417-unit second phase of Trinity Plaza was projected to complete construction in summer 2013. The 750-unit Crescent Heights broke ground in January 2013 for completion in April 2014.

In the 9,787-unit Russian Hill/Embarcadero submarket, the vacancy rate is 2.5%, and the average asking rent is $2,767 per month, the highest in the West Bay area according to Reis.

In the 8,084-unit Marina/Pacific Heights submarket, the first quarter vacancy rate is reported by Reis at 2.0%, the lowest in San Francisco proper, with an average asking rent at $2,368 per month. “The Marina, the tract with the highest creative class concentration in San Francisco, has a reputation for being chock-full of young former fraternity members,” according to the Atlantic Cities. “As the San Francisco Chronicle notes, ‘Today the apartment buildings, shops, and restaurants seem to be bursting at their seams with beautiful, young and fit 20- and 30-somethings.”

The 16,018-unit South of Market (SoMa) submarket has a vacancy rate of 5.0%, highest among the submarkets, and an average asking rent of $2,517 per month, the second highest market-wide. In the close vicinity of both the financial district and the high-tech, bio-tech hubs in the city, this is a very strong market. This submarket has dominated new supply recently, but while 1,032 units remain under construction here, new supply is spreading to other areas.

The 8,381-unit North Marin submarket has a vacancy rate of just 1.5%, the lowest among the submarkets, and an average asking rent of $1,608 per month, the second lowest according to Reis.

In the 14,713-unit Central San Mateo submarket, the first quarter vacancy rate is reported by Reis at 2.9%, with the average asking rent given at $2,006 per month, highest in the suburbs.

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The 2012 SF Real Estate Wrap-Up

Happy New Year everyone! As promised, here is a link to Paragon’s comprehensive analysis of trends in the San Francisco residential market and beyond in 2012. You’ll find 19 incredible charts and maps covering a host of metrics and I highly recommend a quick scan of the online newsletter to find the stuff that might interest you. I’m going to cherry-pick just a handful of my favorites to discuss below.

Continue reading

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Newsletter: Is the SF Market Easing a Little?

Is the Ferocious SF Market Easing a Little?

October 2012 San Francisco Market Update

September brought a burst of new inventory that helped satisfy some of the fierce buyer demand for San Francisco homes. Anecdotally, word on the street is that the market may have calmed down a little after Labor Day: not every listing is selling immediately amid high numbers of competing offers — though this may simply reflect the temporary increase in new listings, or sellers too hopeful in their asking prices. But it also appears that home price appreciation has been stabilizing or at least slowing in the last quarter after the big jump earlier in the year. It’s still too early for conclusions: Since most statistics are like looking in a rearview mirror, what is happening today will only become clear in coming months.

Even if the market has eased a little, it is still very strong and very competitive by any historical measure.

Below are 2 updated, mapped analyses of median sales prices and average dollar per square foot values. Almost all the current values reflect a significant jump from 2011: for the city overall, the increase has been in the 10 to 12% range, but it can vary from 4% to 18% by neighborhood and property type.

Median Sales Prices

After the big jump early in the year, median price appreciation for both house and condos appear to have stabilized or slowed – at least for the city as a whole. (Market conditions vary widely by neighborhood.) The median sales price for non-distressed SF condos now slightly exceeds the median price in 2007, the last peak of the market, while that of SF houses is only 5% below 2007. We have similar charts going back 15 to 30 years available on our website.


September had the highest number of new listings of any month in the past year, though well below previous Septembers: 760 new home listings in September 2012 vs. 888 in 2011 and 1138 in 2010. This significantly, if temporarily, expanded the choice of homes available to buyers. But now, in October, the number of new listings is dwindling again and inventory is still drastically low by any historical measure. Overall, in the third quarter, there were 1100 fewer listings than in the same period last year, but the number of sales increased by 21%.

2-Bedroom Condo Median Prices

In the 5 areas shown, condo values jumped across the board, though the most dramatic increase from the bottom of the market has been in South Beach/Yerba Buena — where in the last 2 quarters, the median price surged ahead of that for Pacific and Presidio Heights. Noe and Eureka Valleys and surrounding neighborhoods, SoMa and Hayes Valley/NoPa have also seen large increases. If you’d like data on a neighborhood not listed, please let us know.

Average Dollar per Square Foot House Values

Though pretty much all SF neighborhoods are seeing increases in dollar per square foot values for houses, the more affluent districts 5 (Noe/Eureka/Cole Valleys) and 7 (Pacific Heights-Marina) have seen some of the largest jumps. In the last 2 quarters, District 5 hit a point matching the peak of the market in 2007. If you’d like data on a neighborhood not listed, please let us know.

Luxury Home Sales

Comparing the 3rd Quarter 2012 with 3rd Quarter 2011, MLS listings of San Francisco homes of $1,500,000 and above increased by 23% and sales soared by 54%. This map shows where those sales occurred: 18 in the Sea Cliff/ Lake Street/ Richmond district; 26 in the Pacific Heights/ Marina district; 21 in Russian/ Nob/ Telegraph Hills; 19 in the greater SoMa/South Beach area; 53 in the Noe/ Eureka/ Cole Valleys district; 10 in the St. Francis Wood/ Forest Hill district; 2 in Potrero Hill and 3 in Bernal Heights. The highest prices are still generally achieved in the band of very affluent neighborhoods running across the northern boundary of the city, though growth in the number of luxury home sales is strongest in the central and northeastern areas.

Months Supply of Inventory (MSI)

Still bumping along at the lowest levels in memory. MSI reflects the amount of time it would take to sell the current inventory of homes for sale at the existing rate of sales. Lower MSI means higher demand as compared to supply.

Percentage of Listings Accepting Offers

Houses, condos and TICs all hit historic highs in the 54% to 60% range earlier in the year, but have now fallen back a bit. In the third quarter, TICs saw a rather large decrease, but their percentage is still much higher than in the last four calendar years. The percentages for houses and condos are still extraordinarily high. This statistic is one of the clearest measures of supply and demand.

Average Days on Market

For those listings that did accept offers in September, the average days on market was the lowest in a long while. Many new listings, especially those considered most appealing and well-priced, are accepting offers within 7 to 10 days of coming on market.

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Summer’s Unflagging Demand Fuels Higher SF Home Prices

San Francisco Real Estate Market: September 2012 Update

Typically, the real estate market slows down during the summer months – a period often called the summer doldrums — but that certainly did not occur this year in San Francisco: unflagging buyer demand continued through August. The market recovery that began in some SF neighborhoods late last year has now spread throughout the city. Bay Area, state and national home markets are also showing clear, if still early signs of turnaround.

San Francisco House Values Rising

It’s rare that the 3 main statistical measurements of home value line up so perfectly, but comparing this summer’s house sales to last summer’s shows 12% increases across the board. Which doesn’t mean uniform appreciation for SF homes: changes in value vary by property and neighborhood. This analysis and the one following are for non-distressed sales in the city’s 8 northern and central districts, which generally run north of the Sloat Blvd/ Highway 280 line: The 2 southern districts were hit much harder by foreclosures and though they too are recovering quickly, mixing in their data distorts the results. During this 3-month period, house sales volume in the 8 districts was up 5% in units and 18% in dollar volume — and would be up much higher if more inventory had been available. Average days on market fell from 52 days to 39 days year over year.

San Francisco Condo Values Rising

The condo statistics don’t line up quite as neatly, but nearly so: they’re up from 9.4% to almost 12.5%, with the average being about 11%, which is very close to the 12% increase seen in houses. (Remember: these statistics are generalities regarding the sale of many hundreds of relatively unique homes.) Closed sales follow the time when new listings hit the market and offers are negotiated by 4 to 10 weeks, so these charts reflect the market from April through July. Non-distressed condo sales volume in the 8 northern/central city districts during this 3-month period is up 41% in units and 54% in dollar volume from last summer, and average days on market dropped from 69 days to 47 days.

Most Listings Selling At or Over Asking Price

San Francisco is currently seeing remarkable percentages of homes selling above and sometimes far above the asking price: 64% of house sales and 45% of condo sales in August closed at above list price, and solid percentages sold at 10% higher or more. This is perhaps as good a snapshot as any of the ferocious heat of buyer demand right now. (Sales that were within a quarter percent of 100% were considered “At List Price.”)

Percentage of Listings Accepting Offers

No summer slowdown is showing up in this important metric of supply and demand.

Price Reductions, Sales Price Percentages, Time on Market

Over two thirds of SF listings are selling quickly at an average of almost 4% over the asking price. Those listings that go through one or more price reductions take much longer to sell (over 2 1?2 months longer on average) to close at a significant discount to original price. For every listing selling after a price reduction, another listing expires or is withdrawn without selling, typically due to being perceived as overpriced. The keys to getting the best price for your home: price it right to begin with; prepare it to show at its absolute best; comprehensively market it to buyers and agents; negotiate offers aggressively. And it doesn’t hurt to take advantage of a low inventory/high demand market.

Distressed House Sales Declining

Distressed house sales – bank-owned and short sales – are clustered in the city’s two southern districts, running from Bayview to Oceanview. However, these listings are rapidly declining as the market turns around and values increase: distressed house sales have dropped from 20% of sales in 2011 to 12% in August 2012. This becomes a virtuous circle of market recovery: higher values mean fewer distressed listings; fewer distressed listings lessen their (significant) negative effect on neighborhood home values.

Distressed Condo Sales Sinking

The distressed condo segment of the SF market is dwindling rapidly both as a percentage of total sales (from 20% in 2011 to 14% YTD, and 10% in August 2012), and even more dramatically, as a percentage of listings for sale (down to only 4% as of August 31). The greatest number of distressed condo sales has been in the greater SoMa/ South Beach area, where so many of the new, big developments were built over the past 10-15 years, but the impact of these sales is shrinking very quickly everywhere in the city.

Unit Sales Up

Condo and 2-4 unit building unit sales are up over 20% from last year this time – this time comparing a six-month period of each year. House sales — and indeed sales of all types — would certainly be up by a much greater percentage if there were simply more listings for buyers to purchase.

Inventory Way Down

There’s no ambiguity in this chart: An inadequate number of new listings and extremely high demand have kept the inventory of listings available to choose from on any given day lower than at any time in recent memory. It’s not unusual for September to bring a large burst of new listings to fuel the autumn sales season: in this chart, you can see the big jump in September 2010 and the smaller surge in September 2011. Buyers and their agents are certainly praying for a surge in inventory to alleviate the intense competition for available homes.

Days on Market Continue to Decline

The trend is clear: listings are selling much more quickly. Though 37 days as an average is very, very low — nationally, there’s excitement that the figure just fell to 69 days — many new listings in the city are accepting offers within 7-10 days of coming on market.

Values by Neighborhood, Property Type & Bedroom Count

We just completed our detailed semi-annual survey of SF home values. This is one of seven charts: the complete report can be found by clicking on the Market Dynamics Charts link in the footer below and then selecting Neighborhood Values from the sections listed on the upper left of the webpage.

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