While the average asking rent for an apartment in San Francisco rose to $3,229 in the second quarter of 2014, up a little over 9 percent since the second quarter of 2013 and 45 percent over the past four years, the vacancy rate for large apartment buildings in San Francisco has increased from 3.8 percent to 4.6 percent as a backlog of new developments is starting to come online.

In fact, “with development at record levels and rental rate growth having far exceeded the pace of income growth for five years now,” Cassidy Turley sees “an inevitable slowdown” on the horizon for the rental market in San Francisco.

At the same time, while rents in Oakland have increased nearly 20 percent over the past year, the largest increase across the Bay Area, they remain 25 percent less expensive than in San Francisco and the average overall East Bay rent is nearly 45 percent less.  As such, while seeing an inevitable slowdown for San Francisco, Cassidy Turley is expecting rent growth to accelerate in the East Bay.

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Comments from “Plugged-In” Readers

  1. Posted by eddy

    Their commercial market update for the Bay Area is pretty comprehensive and bullish (inevitably)

    This is an incredible time to be in the Bay Area, commercial real estate and with Cassidy Turley. The Bay Area’s recent tech boom is lifting all economic boats in the region. Unlike the dot.com surge of the late 1990s, this tech boom has deep staying power that is being driven by the most profitable—and proven—companies in the world. There are strong signs that it will strengthen in 2014.

    There are some good stats in there and worth a quick flip: http://www.ctbt.com/Forecast2014/#4 (flash required)

    Interesting stat on multifamily investments:

    Multifamily Investment Outlook The multifamily sector has accounted for $3.7 billion of the $10.1 billion of total deals we tracked through Q3 2013. With three months left to go, that total has already far outpaced the roughly $2.8 billion in closed deals that we tracked over the entirety of 2012. Our tracking of Q4 deal activity indicates a strong performance to close out the year—as of early December we were tracking over $700 million in closed and pending deals. When all is said and done, we think that the final tally for the Bay Area’s multifamily marketplace in 2013 will be close to $4.5 billion. This would make 2013 the strongest year for multifamily investment since 2007, when the marketplace recorded over$5.3 billion in closed deals.

    Long time owners are cashing out as ‘peak prices’ and new buyers will likely improve those buildings. Think mix. :) Or not, some may just cash flow them.

  2. Posted by Arch

    The same thing is happening in Los Angeles. A softening of the very hot Westside rental market while the eastern and northeast neighborhoods are now appreciating at a rapid pace.

  3. Posted by san FronziScheme (formerly known as lol)

    It’s not really rocket science. Newcomers make 200K/family they’ll be ready to pay 4000-4500/month for a family-sized place. Single guys working in tech making 150K will pay 3200-3600. Once this renter pool is maxed out, you need either:

    1 – good income people bunking together
    2 – better income people to move in

    Even though we do have 250K+/y newcomers they are not in big enough numbers to push the rents to the skies. But they are likely to have a big influence on the purchasing market in residential areas.

  4. Posted by eddy

    The point missed is that rents, to a large extent, have a ceiling and turnover in SF units is low. So what is happening is that everything hitting the market, in most any condition, is renting out at all time highs. And landlords are pushing on anyone they can to move out and secure new tenants. There is still a lot of older stock that is turning and getting rented. It’s a pretty complex market and the data doesn’t tell the story. The story is that SF and the Bay Area in general is about as hot as any city ever has been and shows no sign of cooling off. No shortage of businesses / landlords looking to extract value from those choosing to live here.

  5. Posted by anon2

    So, demand spiked in an area/time period where supply was very slow to respond, causing prices to spike up. Now as supply slowly but surely comes online, pricing moderates.

    Just as shocking, I hear that scientists have discovered evidence that water is wet and the sun is hot.

    • Posted by san FronziScheme (formerly known as lol)

      I am not sure supply has already absorbed new demand. Existing demand, partially, probably. But with all the new developments in the pipeline, it is certain to have an impact in the next 2 years.

      Even with a huge disconnect between supply and demand, could rents double? Nope. I do not see anyone willing to pay 7K for an average 2/1 apartment. To pay this you’d need almost 300K in income and they would go to SFH first. You also need to take into account class perception in the rental market. The newb geek making 150K will move next to rent controlled old-timer retired fishmongers Jack&Jill who are paying 700/month, but a class conscious executive will look closely at his surroundings.

      I think the rent levels are as high as they can be, at least until we see new class barriers broken. Maybe geeks will bunk with other geeks and provide an extra 20% bump? But more than this, I am not so sure.

      • Posted by England

        It always seems high until it goes higher.

        • Posted by san FronziScheme (formerly known as lol)

          That would be great! I am collecting market rent and am able to adjust almost in a monthly basis to stick to the market. I would still do fine with rents 30% under what we have today, but anything at the current levels is just pure gravy.

          I also recognize we are living in a unique gilded age in SF. The issue with this is that the word is out and therefore 1) other metros are trying [to] compete and 2) the quacks will be coming soon to milk the beast while it’s still fat. I am not leaving one penny on the table while things are good.

      • Posted by francis

        It’s also worth considering that living in a hip neighborhood is a discretionary luxury good, and at a certain point even the 250k+ folks will decide they’d rather spend the SF premium on something else.

  6. Posted by England

    What happens when Uber and AirBnB goes public? I think property and rental prices ROCKET through the rough as techies are smartly diversifying into real assets.

    • Posted by san FronziScheme (formerly known as lol)

      Techie here. The year to diversify was 2011. It was still good in 2012. Today it’s just asset shuffling.

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