Back in August, a few months before the first phase of Avalon’s new 326-unit Dogptach development at 800 Indiana Street open its doors, the development was being marketed with studios starting at $2,910 a month; one-bedrooms starting at $3,305; two-bedrooms starting at $4,525; and three-bedrooms priced at $6,979 and up.

And with tenants having started moving in last month, the starting prices at 800 Indiana have dropped an average of 8 percent since August, with the exact same $2,910 studio now priced at $2,725 (down 6.4 percent) and three-bedrooms now available for immediate occupancy starting at $5,829 a month (which is 16.5 percent lower than four months ago).

As we reported in October, the weighted average asking rent for an apartment in San Francisco (including one-off rentals as well as units in larger developments) had dropped to around $4,100 a month, which was not only down around 3 percent over the previous two months with seasonality in play, but also around 2 percent lower on a year-over-year basis and 8 percent below a peak in the fourth quarter of 2015.

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Comments from “Plugged-In” Readers

  1. Posted by Dave

    It’s likely that the marketing team was a bit optimistic on projecting rents. Rents are down some in the City but not 8% IMO. The projected rents were too high to begin with given the market but they gave it a try.

    The tax bill will have all kind of ramifications on California and especially SF/the Bay Area. There will be a shift of high earners out of the state and shift towards renting over owning within the state which might put upward pressure on rents in projects such as this. More apartment projects and fewer condo projects? Given this, the Claw’s twin condo tower might pencil better as a rental project. With units mapped as condos.

    If the tax bill passes, it will add another factor to the uncertain SF RE market.

    • Posted by SocketSite

      Keep in mind that Avalon employs dynamic pricing and the projected rents would have been based on a few thousand local data points at the time, not simply a marketing team’s gut feeling or the old college try.

      In addition, large developers like to start low and raise, rather than lower, prices in order to create a sense of urgency and avoid pissing off their early adopters and champions of a community.

      • Posted by Dave

        Rents are down some but 8%? I dunno.

        Going forward and given the already anemic Bay Area growth rate – about .6% compared to Seattle and Portland’s close to 2% growth, the rent situation will likely remain sluggish in terms of higher rents. Growth rates could slow further in pricey coastal areas like SF. So, even though the tax bill will push some Californians to rent rather than buy, an accelerated out-migration due to tax changes will mitigate that to an extent. Bottom line, the RE market in California will remain problematic.

        • Posted by Sabbie

          I’m showing rents are down 4.5% from peak but that’s for all properties. I would not be surprised if new construction shoebox rents were down around 8% given all the supply coming on, while SFH and vintage properties were holding up better.

      • Posted by SFrentier

        “In addition, large developers like to start low and raise, rather than lower, prices in order to create a sense of urgency and avoid pissing off their early adopters and champions of a community.”

        Not really. Big devs usually like to capitalize on the hype of being the latest and greatest. And then they create all sorts of smoke and mirrors to try and fill up in a slowing market, like free 2, 4 or 6 weeks rent, free parking, etc.

        There is a big difference between rent declines in smaller and older properties (inc. those nicely renovates) and the hyped up new construction projects, which also tend to be concentrated in specific areas and hence get saturated with new units as well. I’m sure that many new projects have seen +- 10% reduction in rents and/or significant vacancies. OTOH older and smaller buildings have had much smaller rent reductions, from 0 to 5%.

        • Posted by SocketSite

          Close but not quite. Keep in mind that our tracked reductions in the base prices above don’t include any so-called “smoke and mirrors” offers, such as the current $1,500 “move-in bonus” being offered for leases signed by the middle of the month.

    • Posted by cleverpunhere

      My moment of gross speculation:

      The implications of the tax bill are very hard to foresee–and not just because the bill is not final yet. “Buy and hold” is already a very attractive strategy in California because of prop 13 and low 30 year rates for most of the last decade. But the tax bill makes that approach even better, because if you sell your existing house and buy another you will swap deductible mortgage interest on the old mortgage for non-deductible on the new mortgage.

      The point of all of this is that while the bill makes new home ownership more expensive, it also makes it less likely that existing homeowners will sell, thus impacting inventories. What does this mean long term? I have no idea. But it is very complex.

      Note also that other states, like Washington, have comparatively high property taxes to cover their lack of state income tax. Thus those states could be hit even harder, depending on the details of the final bill.

      • Posted by Dave

        Actually, the tax rate in Washington is similar to California. 1.1% in King County (Seattle) and 1.28% in Vancouver. The median home price in Seattle is several hundred thousand less than in SF. It is 700K or so less in Vancouver. Home sales, if the 10K cap is enacted on property tax deductions, will be most likely less impacted in Seattle and definitely so in Vancouver. Vancouver is poised to boom for a variety of reasons and the new tax bill would add to those reasons.

        If high net worth individuals continue to leave California and I that accelerates wann bet the state imposes new taxes? There is already talk of that potential if the tax bill passes. Another thing to watch.

  2. Posted by Cat's Meow

    There are also currently 3 other similar apartments in lease-up in Dogpatch. The prospective tenant traffic stays the same, but it is now shared with four buildings. When these 4 properties stabilize (summerish?) it will be interesting to watch rents.

  3. Posted by phil

    Maybe the idea of living in a generic box next to 280 isn’t particularly appealing?

  4. Posted by Jay78

    Would be nice if they dropped to the following: Studios $2,200, 1 bedrooms $2,700, 2 bedrooms $3,200, 3 bedrooms, $3,500. Charging $5,829 a month for a 3bedroom apartment is completely insane.

    • Posted by Pablito

      Agreed. They a making a killing – even at 8% lower than they expected. Rents like these are a large part of why so many voters are behind rent control. Which does far more to hurt the City than help it. SF is rapidly turning into one of the most economicaly unequal cities in the country.

      • Posted by ayhsmb

        Have you done development in SF? Why don’t you pencil out this “killing” for us…

  5. Posted by tipster

    This is consistent with what I’m seeing at other large complexes around SF (which is all I track – the individual condo rental market is too hard to track). Rents are down more than 10% from a year ago at some of them. Probably about half of that in the last month. This is the start of a slower period for rentals (so the large drop in the last month is indicative of nothing), but compared to the same time last year (which would have been in the slow period as well), down 10% is about what I’m seeing.

    • Posted by Ohlone Californio

      How are you obtaining this data?

      • Posted by Ohlone Californio

        And can you please share? thanks.

        • Posted by Tipster

          Several times per year, I download the units offered for rent at the larger complexes. You can get their asking prices and layouts and then you try to look for units that are the same or identical, and try to adjust the prices based on that. Sometimes, you can get the same unit, but more often, you are looking at a unit that might be less than ten percent of the number of floors above or below, in the same stack with the same finishes. For example, if I can find a unit on the 5th floor, I need to find a unit 0.5 floors above or below to consider it (or one floor above or below a tenth floor unit), and I’ll make an small adjustment based on the difference.

          It doesn’t always work because there might be a building blocking the view that tops out right at the lower level unit, but if you have enough of a selection, you can usually get a pretty close idea. You can also look at extras being offered, because those extras mean the units aren’t moving.

          The larger complexes usually provide very detailed floor plans, orientations, and the like. You can also get an idea of whether the prices are in line with the market based on the number of listings they have open, though sometimes, many are hidden. But if you see a complex that usually has N listings open and they have 5N listings now, you can be sure their prices are just way out of line.

          I won’t pay too much attention to places in problem locations, as their prices can fluctuate far more than the market.

          Then you have to download them and save them with the date. The next year, you can compare. I check both San Francisco and the newer complexes in Redwood city. Things in the price point of $4300 last year are running around $3700-$3800 now in San Francisco. The year prior, RWC fell by around 10% and this year, about 3%.

          I use RWC as a sort of indicator of a market that can lure someone out of SF if the price is right. Someone commuting down to silicon valley from SF can be lured to RWC for the right price. So last year, RWC dropped by a lot, luring people out of SF, and now it’s SF that is falling, at least in part, as a result of that action last year.

  6. Posted by goodmaab50

    Would be nice if they dropped to the following: Studios $750-1000, 1 bedrooms $1100-1500, 2 bedrooms $1600-1900, 3 bedrooms, $2000-2400. Charging above $2500 a month for a 3bedroom apartment is completely insane.

    • Posted by Fishchum

      I’m not sure if you’re serious or just mocking Jay78’s post.

  7. Posted by Newcomer

    I pay $1850 a month for a studio in Pleasant Hill

  8. Posted by oh my

    Just the start….I figure that the by the time the new construction going up at the old Goodwill site AKA The Hub (South/Van Ness and Mission) comes on line it will be nip and tuck to get cash flow to cover the project pro forma.

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