WESTERN SNAPSHOT, JANUARY 2005
San Francisco Multifamily Market
San Francisco employers are expected to add jobs this year
for the first time since 2000, which should boost rental demand
for local apartments. The regions investment market
has held up to numerous challenges in the past few years,
and transaction velocity is expected to meet or exceed levels
reported last year. Multifamily vacancy, though well above
levels recorded a few years ago, is below the national average,
and construction activity continues at a slow pace, factors
that will benefit owners in the coming years.
Development activity for 2004 was modest, and in 2005 only
1,000 new units are expected to come online, a 30 percent
reduction. However, this development activity will still serve
to temper gains in tenant demand. Renewed interest in high-rise
housing developments has resulted in several condo and rental
projects planned for the city. The 1177 Market Street project,
which would comprise more than 1,400 rental units, is perhaps
the most significant of the proposed apartment communities.
Vacancy in San Francisco, while still higher than most property
owners are accustomed to, remained high in 2004. Relatively
high vacancies of 6 to 7 percent are still less than the national
average though. Rates are expected to hold steady in 2005
with improvements following more substantial job growth.
San Francisco rents have fallen almost 30 percent since 2000,
although they remain 50 percent above the national average.
Although some property owners continued to adjust rents downward
and offer modest concessions through 2004, rents at most properties
have stabilized along with occupancies. In 2005, owners are
expected to trim concessions, perhaps raising effective rents
by 1 percent, to a monthly average of $1,543.
Despite the economic challenges of the past few years, investor
sentiment has remained positive for San Francisco apartment
properties. After 3 years of waning sales velocity, 2004 brought
increased activity to the San Francisco market. Further increases
are forecasted for 2005 as investors seek to capitalize on
still-favorable interest rates and a stable rental market.
Strong investor demand pushed the average price per unit to
more than $180,000 at year-end 2004.
The long-term positive outlook for San Franciscos multifamily
market is supported by the regions demographics, high
barriers to entry for new development and high home prices.
For example, almost 25 percent of San Franciscos population
is in the 25- to 34-year-old age cohort, one of the segments
most likely to rent, and nearly 60 percent of the areas
residents live in non-family households. The percentage of
households in San Francisco able to afford a median-priced
home stands at 12 percent.
Jeffrey Mishkin is a first vice president and serves
as regional manager of Marcus & Millichaps San Francisco
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