While the development of 8 Washington Street might have hit a (no) wall in San Francisco, over 1,000 new housing units will be finished the fourth quarter of 2013 for a total of nearly 3,500 new units in San Francisco this year, five times the number completed in 2012.
With construction in San Francisco continuing to ramp up and “renter resistance” to rents in the city starting to surface, Marcus & Millichap is expecting the average effective rent in San Francisco to end the year at $2,490 a month, up 4.7 percent over the past year versus 9.9 percent in 2012.
“Effective rents dipped in two of the past three quarters, and broader use of leasing inducements could occur at properties directly affected by nearby construction in 2014. Average effective rents at 2000s-vintage assets have climbed to 45 percent of median household income, up from 37 percent just two years ago. As renters commit to an extra $6,000 per year in rent payments, the incentive to “double up” or move to more affordable communities with mass transit options is rising.”
Also noted: “With rents so high, the cost of vacancy is exacerbated in the current climate, giving apartment managers further incentive to proactively reset monthly rates to avoid loss to lease,” which might be a bit counterintuitive and a little leverage for leaseholders to keep in mind.