April 23, 2009
RealFacts Reports (Not So Real) Asking Rents Flat In San Francisco
Based on a RealFacts survey of "professionally managed apartment complexes with 50 or more units," The Chronicle reports that average rents in San Francisco are off by a nominal 0.1 percent on a year-over-year basis and 95.8 percent occupancy (down 1.9 percent).
Unfortunately, and not too ironically, the RealFacts survey reflects the not so real market of asking rather than effective rents (after incentives). And keep in mind that over 700 units of new rental inventory has recently (or will soon) come on line in San Francisco and will need to be absorbed.
That new supply includes 192 units at Strata which offered a plugged-in reader a year of free parking and one month free rent, an effective discount of over 8 percent on a one year lease which wouldn't be reflected in the RealFacts survery of asking rents.
UPDATE: Speaking of incentives and why asking rent trends for large buildings aren’t a great measure of how the rental market is actually moving: "I just got an email from Argenta offering 2 mo free, up from 1 mo. Very nice people, BTW."
∙ Bay Area rents down for second straight quarter [SFGate]
∙ T-Minus Four Weeks For 260 New Mission Bay Apartments (355 King) [SocketSite]
∙ The Scoop On Strata At Mission Bay, Its Environs And Rents [SocketSite]
∙ The Rather Ironic "Argenta Silver Lining": Now Leasing At One Polk [ScoketSite]
First Published: April 23, 2009 9:45 AM
Comments from "Plugged In" Readers
Down 4% from Q3? SFRentStat shows more like 15%. And that's not counting 1-2 mo free rent, free parking, etc. The new reality is that anything over $3000 will sit for months unless it's super nice. Even Argenta is down to more realistic $2700 + 1 mo free from $3500. Another 15% will make SF rents almost reasonable.
Posted by: jj at April 23, 2009 10:13 AM
I'm looking to move to Russian Hill / Telegaph Hill in the next 1 to 3 months. Will June 1 inventory increase more than the past few months? Or is better to wait even longer? Price range = $2,000 - $2,600, but I'm not seeing tons of new places open up.
Posted by: kk at April 23, 2009 10:22 AM
There is a serious backlog of un-rented units and a major price stalemate on landlords who are refusing to decrease rents.
In my simply observational analysis around D7 there is a point of demarcation in rentals around the 5k mark in SF. Below 5k will get you a decent living accommodation (the more the better). The next tranche of rentals starts at 7k and starts to get you a very nice / top of market home. There is a major inventory gap between 5-7k. The 6k homes / flats are all now squarely priced in the 5's. Nice 3bd places can be had for 4500 or so. There are scores of SFHs priced above $7k that are simply not moving. It's a big deal to whack $1k off the rental price as it hurts the owner economics greatly. I suspect this will continue for a few more months and these higher end homes will either hit the for sale market or drop a good 10-15%, same with the lower end rentals as well.
The same is holding true in other districts as well. The demarcation points are different however.
This is all very similar to what we saw in the for sale market in terms of Mix, etc... You simply cannot judge the rental market by asking rents, but there aren't many better metrics. Even surveying landlords is seriously flawed since they obviously have an incentive ot inflate their figures.
Posted by: eddy at April 23, 2009 10:23 AM
What fraction of the SF rental market is contained in the 50+ unit buildings? I'm going to guess very little.
Posted by: Jeffrey W. Baker at April 23, 2009 10:32 AM
I am currently residing in the Nopa region and have recently negotiated the rent down by 20%. We were paying upper middle 3k's for 2BD/3BA.. and now pay mid 2k's for the same place and we now get free parking included.
I see the same apartments i 2 months ago on craiglist in nopa region, so things seem to be not moving at all.
Posted by: anony at April 23, 2009 10:59 AM
I am seeing a lot of 'For Rent' signs in Pac. Heights, Lower Pac. Heights and Nob Hill. No-one mentions the rent, but I am guessing they are not budging from their overprices asking price, since most of these units that I drive by are vacant for over 3 months.
kk, how has your search been ? Are there lot of prospective renters when you go for open houses ?
Do the landlords seem open to negotiations or are they still holding their snotty noses high ?
Posted by: Chad at April 23, 2009 11:02 AM
Yep, all current tenants should be negotiating lower renewal terms when their lease is up (I just did yesterday on my mission loft). If the LL balks, go find a better deal which are a plenty....
Posted by: Irwin Fletcher at April 23, 2009 11:06 AM
I have been seeing the same apartments for rent for over a month on Craigslist -- inexplicably sometimes for the same rent. If I was a landlord and my place hadn't rented for over a month, I'd certainly be lowering asking for a couple of hundred at least. In Potrero Hill there have been a couple of "for rent" signs staying in windows for weeks.
Posted by: commuter at April 23, 2009 11:07 AM
I have some apartments in SF that I rent out. They are all occupied with no-one calling to ask for a rent reduction.
After the dot com bust, though, every one of these apartments went empty. But I was able to fill them up pretty fast again.
Posted by: Unwarrantedinlaw at April 23, 2009 11:19 AM
I hope this doesn't turn into a 'rent control' discussion, but I can see why rents in rent controlled buildings will be very sticky. Many landlords will prefer to be vacant rather than accept lower rents given that the rents can't be raised later on.
anony, I am curious if you are in a rent controlled building. Congratulations on the 20% rent reduction... a penny saved is a penny earned.
Posted by: chuckie at April 23, 2009 11:21 AM
Another anecdote to go along with anony:
We had a place in NOPA on CL for a month that had bites, but no takers at the previous rent. People made it clear they could get something better for that price. We dropped the price ~10% and then had more takers than we could handle.
Posted by: rr at April 23, 2009 11:31 AM
Last year, when we moved here from LA we couldn't find any 2 bedroom for less than $2800 in the city that we felt we could actually live in comfortably. Often, the places we saw were less than a 1000 square feet, shabbily kept and/or were in less desirable parts of neighborhoods you might want to live in (Potrero Hill, NOPA).
Several were condos that owners seemed a little desperate to rent out to help with the mortgage.
But, more importantly, at the time we could barely get landlords to call us back on things we were interested in.
We moved to Oakland where we found a 2 bedroom unit on Lake Merritt with close to 1200 square feet, plus nearly 800 square feet of enclosed patio and enclosed parking in a doorman building.
It wasn't exactly what we'd hoped, but it was a lot better and roomier than anything we saw in San Francisco in our range (up to $2700).
This spring when we started looking again, everything was different. In the Lake Merritt area luxury apartments (converted from unsold condo units) were offering as much as 2 free months rent along with free parking (where there was none before). And in SF there suddenly seemed to be a much larger number of apts for rent in our range in better neighborhoods.
Also, when we called landlords, suddenly we got calls back, usually within the hour - all eager to show us the place we were asking about.
We still haven't found quite what we are looking for, but in the meantime, we asked for a reduction in rent and are currently pondering a lease that gives us 10% break.
I must confess that our hope is that things actually get worse in the next year so that our money will go even farther.
Posted by: daniel at April 23, 2009 12:34 PM
Question to landlords…if you feel you're charging your tenant rent that is above the market rate, do you proactively offer a reduction, or do you sit tight and wait to be approached? (Lets assume that the initial 12 month lease has expired and your tenant is on month to month. Also lets assume the tenants financial situation has not changed.) Thoughts?
Posted by: Willow at April 23, 2009 12:55 PM
The point made about rents being sticky is very pertinent. From any savvy landlord's view, it is absolutely critical that they get the maximum rental amount possible at lease signing, as they are then stuck into 2% annual raises that just cover the tax increase cost from there out. So yeah, several months marketing a property to get this maximum rent which could be in there for 5-10 or more years is actually a reasonable expense. It makes the transaction of renting an apartment in SF more like a sale transaction with protracted marketing times and negotiations. I imagine that buildings that are not covered by rent control (constructed after 1979) will be quicker to drop their rents as they can raise them right back up when the market recovers.
Posted by: Miles at April 23, 2009 1:30 PM
Per Miles post, I should have added back in mine that the unit we were trying to rent is not rent-controlled, so we'd rather drop the rent quickly now and fill it, instead of letting it sit vacant. A 10% drop is just a little bit more than a month's rent per year, so better to lower prices by 10% than have a 2 month vacancy.
Posted by: rr at April 23, 2009 1:36 PM
Also, they like to tell you "two free months of rent", so the average monthly rent is actually ____.
However, essentially that's a built-in rent increase of 20% in one year, and the rent control will use the contract number.
If you are a landlord, that's a much smarter move than lower the rent.
Posted by: John at April 23, 2009 1:41 PM
My wife and I traded up from a dump in Russian Hill to a much nicer building and apartment in Nob Hill for the same rent, parking included. On top of that, our previous place two years ago included a $3000+ security deposit, first and last month. This time, $500, first month when we moved in.
Posted by: theNOB at April 23, 2009 1:53 PM
"However, essentially that's a built-in rent increase of 20% in one year, and the rent control will use the contract number."
This is an interesting model... couldn't one extend it to build in several years of rent increases?
Posted by: chuckie at April 23, 2009 1:53 PM
I just got an email from Argenta offering 2 mo free, up from 1 mo. Very nice people, BTW. I hereby disavow my previous dissing of Argenta being deluded.
Posted by: jj at April 23, 2009 4:12 PM
I'm a fairly small landlord but I have seen a few more 30 day notices than normal. I don't really go for the lower rent requests. My places are kept in top shape and there are not really many other places kept as nice that are rent controlled.
I am knocking $50 off a week when a place does not rent. But this is no different than when I have overpriced in a better market. The main difference is that other landlords are negotiating at the table and I don't, so what's posted on craigslist is not giving me an accurate idea of what price I should list.
I'm not 100% sure but I think the rent board frowns on free months rent and contract rent prices that calculate out above the allowed rent increase. I have asked my lawyer a few times along those lines and he seems to always steer me away from doing it.
Posted by: sometech at April 23, 2009 4:29 PM
I'm a small time landlord who rents out two units; one is rent controlled, the other is not. Currently the one that is not rent controlled is empty, and I'm definitely wheeling and dealing to get it filled: I dropped the price from $3200 to $3000 even per month in return for the tenants to sign an 18 month lease... my main objective is to avoid turnover as much as possible.
The tenants in the rent controlled unit, when their lease comes up I will offer them a month free to sign another year lease. Again, my objective to reduce turnover, but here I don't want to have to reduce the actual rent amount.
Posted by: danalotus at April 23, 2009 5:32 PM
^ danalotus- be careful with that strategy. See post above. I also think your tenants have a good case against you if they take you to the rent board, and you're essentially stuck with the lower rent as your new basis. Hopefully your tenants are cool, and not assholes trying to extract every dollar from their LL, aided by a compliant rent board. Just realize you are taking some risk.
Posted by: 45yo hipster at April 23, 2009 6:37 PM
Speaking of rentals... here is a former SS feature that closed earlier in the year now for rent for $14k.
I forget the address so couldn't find the original SS post.
[Editor's Note: That would be 2712 Broadway and we're moving follow-up comments to its original post: A Quick Change Of Price Up On The Gold Coast.]
Posted by: eddy at April 23, 2009 8:03 PM
Oy, thanks for the tip on the free month. I guess I will just offer to lower and then if the market does back up then I will take my maximum increases to try to get to where we were before.
Posted by: danalotus at April 24, 2009 11:35 AM
The rent board's frowns are not enforceable.
The solution of a month off is the way to go. The tenant has never written a check at a lower rate that you then endorsed, so there is no contractual understanding of a lower rent.
Posted by: molly at April 24, 2009 7:29 PM
And there are a lot of rent-controlled apartments in the city that are very well-maintained.
Cut the propaganda about rent control unless you're an owner willing to surrender Prop 13, mortgage-interest deductions, and either depreciatation allowances or cap-gains tax exemptions.
And pretty soon, the allowable rental increases should become stratospheric as inflation soars because of all the money the Fed has printed to support the aristrocracy and wannabe aristocracy. The tenants will be screwed, underwriting property owners' 5% mortgages and assorted other federal plans to prop up real estate.
Posted by: molly at April 24, 2009 7:44 PM
This is from EOP's most recent CC transcript:
"Another market in swift transition is that of San Francisco. The forecasted job losses there are substantial. And similar to Seattle our net effective new lease rents in the Bay area have fallen 12% year-over-year and occupancy is down two points to 93.6."
and yes, I already know the difference between "Bay Area" & "SF"...but it is an interesting data point from a large operator.
Posted by: Geo at May 5, 2009 3:02 PM
Thanks a lot for sharing such an important information. I think the survey like this would increase the iq of the tenants and the public. I you have the information, it would be easier for you decide on any rent. thanks.
Posted by: email marketing at May 5, 2011 8:55 PM