It may be a good time to move.
Tenants are taking advantage of a dramatic recessionary collapse in the housing market by moving into luxurious new digs at discounted rates, or by locking in attractive rents in older, rent-controlled properties.
After nearly a year of increasing vacancy rates and falling prices — driven largely by layoffs and by the burst of a nationwide housing bubble — the rental market appears to be stabilizing.
Between September 2008 and May 2009, more than 43,000 jobs were lost in The City, which has a population of roughly 800,000, city and U.S. Census statistics show. Forbes magazine recently rated pricey San Francisco as the fourth-worst city in the nation to live in while unemployed.
Vacancy rates shot up as laid-off workers in San Francisco took in subletters or returned home to the East Coast, Midwest or elsewhere, said Colliers International residential broker Stephen Jackson. The vacancies, in turn, helped drive down the average asking price for a one-bedroom unit by more than 20 percent over the same eight-month period, from $2,350 to $1,874 per month, city statistics show.
More recently, despite ongoing job losses, rental prices appeared to have begun firming up. Average rental rates began rising in May, and in June the average asking rent for a one-bedroom unit had bobbed back up to $1,902.
“The market, for the most part, has stabilized,” Jackson said.
Yet while prices appear to have settled, landlords are still struggling to find prospective tenants to fill empty properties, according to Jackson and others working in the industry.
With tens of thousands of homes sitting empty, Colliers research indicates that San Francisco’s residential vacancy rate has topped 5 percent. More than 10 homes sit vacant today for every one that was vacant a year ago, the figures show.
What’s more, the number of apartment units on the market is swelling further as developers look to lease out condos as apartments during the real estate slump.
Construction of more than 3,000 new units of housing was completed in San Francisco last year, more than in any other year in recent decades, according to The City’s latest annual housing inventory.
The average number of new homes built yearly in San Francisco over the last two decades was 1,620, the figures show.
A slew of upscale units — the most difficult category of residential rental to lease out at present — is coming onto the market in the growing neighborhoods of Mission Bay, SoMa and near San Francisco’s downtown, according to Jackson.
Many of the buildings were designed and built during the recent housing boom to be sold as high-end condo buildings but are now being used for apartment rentals, Jackson said.
“They’re not going to be able to sell those condos — it’s just not going to happen,” he said.
That has created opportunities for renters to lead decadent lives at relative bargain prices — until the housing market recovers.
Owners of the Argenta, a recently completed, upmarket, 20-story condo building on the south side of City Hall, have been forced to rent out the building’s 179 units at prices starting under $2,000 per month for a one-bedroom unit and under $3,000 for a two-bedroom unit.
The building is half-occupied and prospective tenants are told they will be invited to purchase the units once the market stabilizes.
Roughly two units are being rented out in the Argenta every week, according to Jackson. “Two or three years ago you could fill that whole building up in two weeks,” he said.
At the other end of the spectrum, savvy tenants who plan to remain in San Francisco for a long time are locking themselves into renters’ market prices by signing leases for units built before the 1980s.
Units built before 1979 are protected by San Francisco’s rent control laws, which limit rent increases and create other restrictions on property owners, such as barring evictions in most circumstances.
“In a nice rent-controlled unit, you can be set for a long time,” Jackson said.
Good deals are hardest to find in the hippest neighborhoods, such as the Mission and the Inner Sunset, where residents are less likely to rely on the hard-hit financial services sector for jobs, according to Matthew Sheridan, publisher of the San Francisco Apartment Association’s magazine.
“Those sorts of people don’t hold traditional jobs like they do in a Marina residence,” Sheridan said.
Sheridan said an expected seasonal uptick is helping to stabilize the rental market as students return to colleges. “But after that, it’s probably going to be pretty miserable for the apartment owners,” he said.
Job losses create office space deals
Economic woes have led office tenants over the past two years to desert floor space in San Francisco that is equivalent to more than five Transamerica Pyramids, a leading local broker calculated.
A glut of vacancies in The City’s office rental market is creating bargain opportunities for companies and nonprofits looking to move into nicer or larger digs, according to Frank Fudem, a commercial broker with NAI BT.
“Whether we’re at the bottom or not, it’s a tremendously tenant-friendly market,” Fudem said.
The market for office space ground to a halt following economic crises sparked in the second half of last year, according to Fudem.
But the first signs of life are also beginning to return to the market and some deals are being signed, he said.
“There has been ... a smattering of deals and a number of renewals, to the point where some people think they can detect a quote-
unquote ‘market,’” he said.
Roughly 2.8 million square feet of office space in San Francisco has been vacated since January 2008 by businesses that are shrinking, consolidating or collapsing, according to Fudem.
Tenants are taking advantage of the market by moving from low-quality Class C and B space and into Class A space, he said.
Falling median rental rates in The City
The slumping economy has seen rental rates steadily fall over the past year
Month Median rental rate*
August 2008 $2,228
October 2008 $2,293
December 2008 $2,142
February 2009 $2,077
April 2009 $2,000
June 2009 $1,902
* Relates to asking price, which is often higher than actual price
Source: San Francisco Office of the Controller
S.F. real estate’s rocky ride
Home sales have seen a drop in volume and median price since the recession began
$642,426
Median price of a home in July 2009
$749,000
Median price of a home in July 2008
14.2
Percentage drop
543
Volume of home sales in July 2009
609
Volume of home sales in July 2008
10.8
Percentage drop
Source: MDA DataQuick Information Systems
FAIR USE NOTICE. This document may contain copyrighted material the use of which may not have been specifically authorized by the copyright owner. Tenants Together is making this article available on our website in an effort to advance the understanding of tenant rights issues in California. We believe that this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner.