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SAN FRANCISCO APARTMENT BUILDING MARKET UPDATE - 2016


In general, the San Francisco economy (and apartment building market in particular), has recovered from the economic downturn which started in 2008.

The City's unemployment rate in June, 2016 was 3.9%, which is trending steadily downward from its peak of 10.5% in January, 2010 and slightly below the 2007 SF unemployment rate. This is generally regarded as a very positive sign for San Francisco's economic recovery.

Apartment rents are trending downward in many neighborhoods.  Some neighborhoods, such as Pacific Heights, have had a 4% market rent decrease from the end of 2015. Other neighborhoods such as Nob Hill have experienced a 1% rent decrease from 2015.
Citywide vacancy rates, however, have been low since 2010 and have decreased since 2015.
 
This suggests that while the existing rental housing stock is almost fully occupied, the number of people looking for, or able to qualify for, apartments has decreased.

Apartment building sales volume has in 2016 increased from 2015. Gross rent multipliers (GRM's) have also increased somewhat over the same period. For 2015, the inventory of apartment buildings on the market has been very low, and the number of buyers active in the market has also been very low. Under these conditions many real estate economists expect GRM’s to start declining in the near future.

More than 8,000 new apartment units are under construction in San Francisco, a large percentage of which are expected to be rentals. The number of new apartments being built is much lower, however, than the number of new jobs being created.

Interest rates for apartment building loans have decreased slightly from 2015.  

These factors signal a strong but fairly quiet apartment building market, and also a possible slowdown for sales prices and rents. For San Francisco apartment building investors, this represents a possible buying opportunity in the next year or two.

The following is the summary of selected market data:

A. Average Apartment Monthly Rents (Source: RealFacts)

Change

from

 

 

Q4

Q4

Q4

Q4

Q4

Q4

Q1

Q2

Q3

Q4

 

 

2010

2011

2012

2013

2014

2015

2016

2016

2016

2015

 

 

Pacific Heights

$2,060

$2,330

$2,573

$2,869

$2,831

$3,106

$3,140

$3,136

$2,998

(4%)

 

 

Nob Hill

$2,286

$2,634

$2,960

$3,130

$3,407

$3,579

$3,608

$3,577

$3,551

(1%)

 

 

City

$2,327

$2,590

$2,741

$3,056

$3,392

$3,616

$3,620

$3,595

$3,499

(3%)

 

 

 

 

B. Vacancy Rates (Source: RealFacts)

Q4

Q4

Q4

Q4

Q4

Q4

Q1

Q2

Q3

 

 

2010

2011

2012

2013

2014

2015

2016

2016

2016

 

 

Pacific Heights

3

2

4.2

4.8

2.1

4.1

4.3

4.8

4.6

 

 

Nob Hill

2.4

1.8

5.3

4.6

4.1

4.1

5.1

3.6

2.8

 

 

City

7.9

3.7

4.4

4.5

4.5

5.6

4.8

4.9

4.3

 

 

 

 

C. Sales Transaction Volume (Pacific Heights)

 

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016 (Q1-Q3)

 

10

17

5

14

17

10

15

10

5

7

 

D. Average sales Gross Rent Multipliers (P/E's) - Pacific Heights 7-15 unit buildings

 

15.7

17.7

12.9

13

13.4

14

16.3

18.1

17.4

19.2

 

E. Unemployment Rate - San Francisco

 

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

 

4%

6.6%

10.2%

10.3%

9.1%

8.2%

6.2%

5.0%

4.1%

3.9%

 

(Jul.)

(Nov.)

(Nov.)

(Nov.)

(Nov.)

(Jul.)

(Nov.)

(Dec.)

(Dec.)

(Aug.)

 

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