More office tenants looking to lease in Downtown San Francisco have bargains on the brain, according to a third-quarter Colliers report. After more than a year of hearing about the “flight to quality,” it seems there’s still some allure in an old-fashioned low-priced deal. 

Colliers noted a 14 percent quarterly decrease in effective annualized rents, from nearly $70 in the second quarter to just over $60 per square foot in the third quarter. A lack of “premium” transactions, which had dominated the previous quarters, and a rise in subleases, which averaged only $44 per square foot, were credited for the downward shift.

Derek Daniels, Colliers’ regional director of research, said he started noticing the bargain-hunting trend in the second quarter but it became even more noticeable when compiling the data for the third quarter report. Many tenants are still shelling out top-of-market rents for amenity-filled buildings with views, turnkey space and desirable locations near transit, restaurants and shops, he said. But an increasing number are cost-motivated and looking to take short-term, less expensive deals while they determine what they’re looking for in a more permanent place. 

“There’s always going to be an appetite from tenants who are less cost-conscious and willing to sign on a long-term basis and will pay, and those rents are still holding up,” he said. “I think the big story is that more of the cheaper deals are out there these days.” 

It’s a trend that could benefit tenants and owners during the current uncertain economic climate, he added. 

“There’s enough quality space at flexible terms for tenants to sublease on a shorter-term basis,” he said. “Conversely, landlords are willing to do a lower cost transaction with the potential to re-assess when the market turns around.”

The vacancy rate continued to climb and the absorption rate was down again in the quarter, with the North and South Financial District leading the way in negative net absorption. The latter reported nearly 700,000 square feet of negative net absorption, compared with 530,000 square feet north of Market.  

Jackson Square was a bright spot with positive net absorption in the quarter, according to the report. The North Waterfront a few blocks away has also been popular, Daniels said. 

“Every office building and every company is competing with the couch to get their people back in the office,” he said. “People want to go where it’s safe, where they have a place to eat lunch and go out after work. And I think you get all that in the North Waterfront and Jackson Square.”

According to Colliers, Snap’s sign-on for more than 30,000 square feet in Levi’s Plaza was the biggest direct lease of the quarter and exemplified both the trend of companies preferring the North Waterfront area — Snapchat’s parent company formerly had its SF office in SoMa — as well as looking beyond trophy space to a Class B low-rise building. 

Two AI companies took even more space, but only as a sublease — Hayden.AI signed for more than 40,000 square feet near South Park and Adept AI will sublease 35,000 square feet in Potrero Hill near the Design District, a neighborhood being billed as “Area AI.” Daniels said AI companies and other startups could be looking for temporary spaces now as they await future VC funding.

Daniels said tenants are wary of buildings that might have distressed ownership and will be more likely to seek a new lease after they change hands, drawn as much by stable ownership as the attractive rents those new owners will be able to offer given the lower cost basis. 

Now that a few big office sales — such as 350 California Street , 550 California Street and 60 Spear Street — have gone through, he expects more to follow. And while vacancy is likely to continue to rise in the short term, the health of the market appears to be slowly but surely improving.  

“We finally saw some closely watched sales close. We’re starting to see these lower-cost lease transactions signed and we’re seeing an uptick in tenant touring activity,” he said. “This is all part of the process of moving our market through this cycle.”

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The Bay Area is notoriously expensive and experts weighed in on a report that confirms four of the cities in the county are in the top 10 most expensive places to rent with South San Francisco taking the top spot.

The average one-bedroom rental unit in South City skyrocketed to $2,880, nearly 40% more than it was in 2021, which marked the city as the fourth most expensive place to rent in January’s Zumper report. However, Burlingame, Redwood City and San Mateo were ranked 5, 6 and 9 respectively.

Zumper spokesperson Crystal Chen said San Francisco rents are the most expensive in the Bay Area and it makes sense for many residents who work in it to get more space for less by moving to a nearby city.

“The demand is higher in those less expensive suburban areas because many renters priced out of San Francisco may have turned to South San Francisco for housing since it’s very close to the city but still more affordable,” said Chen.

Coldwell Banker real estate agent Rachel Ni believes the demand to live in the biotech hub, which originates in South City, may only be exacerbated by the growing number of jobs it has produced over recent years.

“In all areas, a lot of companies are doing layoffs but the ones doing the hiring are pharmaceutical and mostly all the big pharma is in South City,” Ni said.

Redwood City is in the middle of the Peninsula. There is a greater demand to live there, especially in Redwood Shores, she added.

“It’s close to Silicon Valley and not too far from San Francisco, the mid-Peninsula is desirable when you factor in its top-tier schools,” Ni said.

Additionally, South City is centrally located to San Francisco International Airport and has fewer issues with crime, cleanliness and homelessness than San Francisco, which could make it more desirable for residents looking to leave, she added.

South San Francisco Councilmember James Coleman reacted to the Zumper report saying it is a really shocking statistic because South City is a really reasonable place to live.

If he could guess, the biggest reason is there are a lot of jobs coming into the city and demand is high.

The city has been proactive toward building more housing with Measure AA passing during the November election, which authorizes the city to acquire, develop or construct low-rent housing, up to 1% of the total number of existing units, annually for eight years. The city will be able to use its $120 million in special housing funds from commercial linkage fees to build 1% of the total number of existing housing units in the city.

Additionally, the city’s 2040 General Plan aggressively addresses the need for more housing to be included just east of Highway 101, with the industrial neighborhood of Lindenville and El Camino Real also seen as places for new homes. The plan helps alleviate the city’s Regional Housing Needs Allocation, a state law dictating how much housing Bay Area cities will need to build in eight-year increments; the city will need to permit 3,956 units of affordable housing between 2023 and 2031. The units are required to be divided among three categories, with rents offered at or below $1,713, $2,741 and $3,426 for a one-bedroom unit.

That equates to approximately 250 units per year, totaling around 2,000 units in the next eight years. The measure would override Article 34, a 70-year-old state law that states additional affordable housing units can only be built with public funds if passed through a voter initiative.

“The City Council is dedicated to keeping our renters in their homes and protecting against displacement. As well as protecting and preserving affordable housing,” Coleman said. “We need to find that balance of folks who want to live near their job but also protect the families who have been here for years against displacement.”

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The weighted average asking rent for an apartment in San Francisco has effectively held at around $3,600 over the past quarter, which is less than 3 percent higher than at the same time last year, 12 percent lower than prior to the pandemic and 19 percent below its 2015-era peak of nearly $4,500 a month, with the average asking rent for a one-bedroom in San Francisco holding at around $3,000 per month (which is less than 2 percent higher than at the same time last year, 15 percent lower than prior to the pandemic and 19 percent below peak).

At the same time, the number of apartments listed for rent in San Francisco ticked up a (1) percent over the past month, with 13 percent more units now listed for rent than there were prior to the pandemic, the inventory of condos and single-family homes for sale across the city ticking up, and the cost of capital having jumped.

Our analysis of the rental market in San Francisco is based on over 170,000 data points going back to 2004 that we maintain, normalize and index on a monthly basis, not simply a few years of data or recollections. We’ll keep you posted and plugged-in.

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It’s wonderful to have a spouse who is practical. Every homeowner knows that there is always something that needs repairing or replacing. Having a hands-on spouse makes getting things done a lot easier while saving the family a ton of money.

Laura Young went a step further and uses her crafty husband James to bring more money to the family.

South West News Service reports that she had a brilliant idea after listening to a podcast about a man who makes a living assembling ready-to-assemble furniture. Why not lend her husband out to others to do odd jobs?

“He’s good at everything around the house and yard, so I thought why not use those skills and hire him?” Laura tells SWSN.

Laura made a Facebook post joking about her husband’s incredible skills as a handyman, and surprisingly, people started booking him for jobs. James booked so many gigs that he was able to quit his job in a warehouse and become more flexible to help Laura raise her three children, two of whom have been diagnosed as autistic and the other needs speech and language therapy.

“It allows us to book jobs and estimates around appointments and school runs without having to clear it with an employer first, risking they’ll say ‘no’ or feeling guilty, and feeling like you’re a team in the let them down,” Laura said sublimely.

u201cWoman who rents out her husband to other women for $340 says “business is booming”nnA mother of three who rents out her husband to other women for odd jobs is experiencing a business boom of u00a340 a time , with the makeshift craftsmen work up to six days a week.u201d

— WestAfriTvud83dudc8e (@WestAfriTvud83dudc8e) 1667372045

James was also diagnosed with autism. “James doesn’t have a professional background, but his grandfather was a nuclear engineer and they think he was in spectrum too,” Laura said. “He has a very methodical mind and can think outside the box. He sees things differently.”

The career change was perfect timing as James found it difficult to balance work and personal life. “It got to the point where at 1 a.m. he had to leave to help me because one or both of the boys were awake,” Laura told Upworthy. “He began struggling with being overwhelmed by the new responsibilities he was given.”

James charges £40 ($45) an hour and can work in Milton Keynes, Leighton Buzzard and surrounding areas north west of London, England. The couple offer discounts to people who work for the National Health Service or are 65 and older.

When James started he had so many bookings that he worked six days a week from 9am to 8pm, but since then the couple have pared their schedule down to a more manageable time of 9am to 5pm Monday to Friday.

The couple work together as a team: Laura handles booking and social media, James handles the handwork. “You create and I build,” James told her, according to the Rent My Handy Husband website.

James works to help anyone who needs help, whether it’s installing a trampoline, building a wall or putting up a TV. The couple have also added a new specialty service for him this holiday season: putting up Christmas lights.

Since the Youngs’ story broke in the news, they have received many positive responses for sharing it.

“Many families, carers and people with disabilities have reached out to us to say they think it’s great that we offer discounts because their disability or carer role means they are unable to work and therefore don’t have much disposable income . said Laura Upworthy. “We have returning clients that we work for every month. We have also been approached by the National Health Service to see if we can offer work experience for people with disabilities.”

The couple’s decision to market James’ considerable DIY skills is a wonderful story about an imaginative family. It also suggests that families with children with special needs need more flexibility in their schedules to accommodate the extra work. Children with special needs often have more doctor appointments and therapy sessions than normal children and may need to spend more time outside of school. The hard part for parents is getting everything working.

It’s wonderful that the couple was able to find a workaround for their lives and that they have the support of people in their community.

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When Blair Vorsatz started apartment hunting in San Francisco this year after living out of state for more than a decade, the 30-year-old Bay Area native braced himself for sticker shock. His first impression of a 1,900-square-foot, two-bedroom condo at the Ritz-Carlton Residences in downtown San Francisco—listed for rent at $8,000 a month—was that it was too big and more than he wanted to spend, even though it checked off other boxes on his wish list: luxury building, great view and close to his job in the Financial District.

But when the landlord cut the monthly rent to $7,000 a few weeks later, Mr. Vorsatz reconsidered. “All of a sudden, I was like, ‘This is gorgeous,'” he said. He signed a two-year lease and moved into the apartment in May. “I got this for a steal, relative to other places around here,” he said.

Although rental markets in major US cities surged to record highs last year, San Francisco’s recovery has lagged behind. Landlords and brokers cited a confluence of factors, including exorbitant prepandemic rents and the city’s rent-control policies, coupled with a mass exodus of tech workers and others over the past two years. While many restaurants and businesses have reopened and workers are being called back, homelessness and crime are prevalent in pockets of the city.

Blair Vorsatz worked with Leslie Bauer, founder of Highrises2Homes, to find an apartment at the Ritz-Carlton Residences, San Francisco.

Angela DeCenzo for The Wall Street Journal

Of the 100 largest cities nationwide, San Francisco’s rent discounts are the steepest, according to data from home-search website Apartment List. The city’s median rents are down roughly 10% from March 2020, said senior economist Christopher Salviati. “They are trending upward, but at a fairly modest pace relative to the national average,” he said.

In June, the median one-bedroom rent was $2,331, up 7.6% year-over-year, Apartment List data show. But the rent growth was far slower than California’s state average of 13.6% and the national average of roughly 14.2%.

Blair Intent leased a two-year, $7,000-a-month condo at the Ritz-Carlton Residences.

Angela DeCenzo for The Wall Street Journal

One reason for the sluggish recovery is that the city’s rental market was the most expensive in the country prior to Covid, and it took the biggest hit when the pandemic struck. The city’s median rent plunged 26% between March and December 2020, Mr. Salviati said.

He said San Francisco’s rental market experienced a “perfect storm” when a chunk of its tech-heavy workforce left the city to work remotely. “A lot of folks were questioning why they were paying top-dollar, big-city prices,” Mr. Salviati said.

Paul Gaetani, a principal of property management company Gaetani Real Estate, said prepandemic rents were the highest he’d seen in his decades in the business. Gaetani manages 4,200 units in San Francisco, mostly five- to 15-unit buildings. “Enter Covid, when everyone either loses their job or works remotely, and people that were paying high rents, they don’t need to pay these rents anymore,” he said. “They can move and do their job elsewhere in cheaper cities.”

More: US Home Prices Hit a New High in June, in Spite of More Listings Coming on the Market

A park in San Francisco. Between July 2020 and July 2021, the city’s population dropped 6.3%, according to the US Census Bureau.

Alamy Stock Photo

Between July 2020 and July 2021, San Francisco’s population dropped 6.3%, the biggest decline of any other city or town nationwide, according to data from the US Census Bureau. (New York City lost 3.5% of its residents during that time.)

Meanwhile, the city’s apartment vacancy rate shot up to 10.2% in July 2020, compared with 3.9% at the start of the year, according to the property management and analytics software RealPage, which said San Francisco had the highest vacancy rate among large US markets . By comparison, the average vacancy rate nationwide was 4.6% at the start of 2020 and never rose above 4.8%.

Mr. Gaetani said the vacancy rate in his buildings, typically 1% to 2%, ultimately soared to 25%. “There was no one to backfill those units,” he said. “All of 2021 was really, really brutal for landlords in San Francisco.” Many slashed rents.

With the pandemic waning, renters in San Francisco are still resisting paying pre-Covid prices, and landlords’ willingness to negotiate has persisted, tenants and brokers said. In May, the average new lease rent in San Francisco was $3,340 a month, compared with $3,859 a month in January 2020, according to RealPage.

A few months ago, John Micek III, 69, a semi-retired lawyer and entrepreneur, toured about 20 San Francisco apartments with his agent, Tracy Zhou of eXp Realty. One, asking $4,975 a month, was a 900-square-foot one-bedroom in a luxury building off the Embarcadero. Despite exceptional water views from the 27th-floor apartment, he didn’t sign right away.

More: ‘Moon River’ Composer Henry Mancini’s Mid-Century Malibu Estate Lists for Nearly $13 Million

John Mikek III.

Cayce Clifford for The Wall Street Journal

“I didn’t need to jump unless I found the perfect place,” said Mr. Micek, who was moving because he sold his house in Silicon Valley’s Menlo Park.

A few weeks later, the landlord called to see if he was still interested. He asked the landlord to rent it furnished, pricey artwork included, and to install an electric-car charging station in the building. The landlord ultimately agreed to split the roughly $4,000 to $5,000 installation cost, he said. He is paying $6,000 a month for the furnished apartment.

Some landlords said their hands are tied by the city’s rent-control ordinance, which limits how much they can raise rents each year in multiunit buildings constructed before 1979. In 2019, California also passed a statewide rent-control law to cap rent increases in buildings that are at least 15 years old.

Renee Voss is a managing partner of Voss Management, which manages around 152 units in six San Francisco buildings. Ms. Voss said she discounted rents in about two dozen units to retain tenants in 2020. “People were telling us, ‘This is what I want to pay or I’m moving,'” she said. She still had a 30% vacancy rate in 2020.

Ms. Voss said rent control is preventing her from reinstating pre-Covid pricing. “Once you lower someone’s rent, there’s no way to say, ‘Covid’s over, we’re taking you back'” to the prior rate, she said.

Not everyone agrees that rent control is to blame for what happens in San Francisco’s real-estate market. Daniel Wayne, a tenants’ rights attorney and partner at law firm Wolford Wayne LLP, said in his opinion, a larger factor is young tech workers now being able to work remotely and pay less for more space. “The main issue is demand and value,” he said.

In San Francisco, homelessness, car break-ins and other crimes have also made headlines.

“It’s a problem, and there are various parts of San Francisco that, honestly, I didn’t want to look at,” Mr. Micek said. The first time he took his girlfriend to see the apartment he ended up renting, there was a sideshow—where drivers illegally block traffic to perform stunts with their cars—at the end of the block. He said it gave him a pause, and it convinced him not to buy in San Francisco right now. Still, he feels that the neighborhood around his building is safe. “So far, it’s been fantastic,” he said.

Whatever the cause, lower rents have been a boon for tenants.

Alex Darden, 24, an investment associate, snagged a rent-controlled studio apartment when he moved to San Francisco in October 2020. The apartment, in the Financial District, had been asking $2,700 a month before Covid. He signed a one-year lease for just over $1,700, he said. “San Francisco is very expensive, so when I was looking around and I saw some of the prices in areas I wanted to move to, I was kind of like, ‘I need to hop on it now,’” he said. In October 2021, Mr Darden’s monthly rent increased by $12.

San Francisco’s newest luxury buildings, which aren’t covered by rent-control laws and typically draw young, well-paid workers, were hit particularly hard during Covid and are still playing catch-up, real-estate agents said.

Covid caused high-rise living to become less desirable overnight, as did paying a premium to live near the Financial District, according to Denise Paulson of Compass. “Nobody wanted to ride elevators. People were washing their groceries, remember?” she said. “They didn’t want to get in an elevator with anybody—even with two masks on.”

More: Salt Lake City Is Set to See Its First Property Tax Rate Rise in Eight Years

To drive lease activity, a number of large buildings are still offering incentives.

Fifteen Fifty, a 550-unit building that started leasing in February 2020, was recently advertising up to two months free, plus eight months of free membership at the fitness club Equinox, on select apartments. At 1177 Market at Trinity Place, tenants recently got a month free plus flexible move-in dates, and NEMA San Francisco offered up to seven weeks free. The George, a 302-unit building in the SoMa neighborhood that started leasing in March, is currently offering two months of free rent on all units plus a $2,000 rent credit on two-bedroom apartments. In late June, developer Brookfield Properties said the building was 52% leased.

Fifteen Fifty developer Related Cos. has scaled back incentives since 2020, when it offered concessions for almost every deal it closed, according to Justina Shutler, a vice president at Related. Now the developer is offering concessions on select units to get Fifteen Fifty “to the finish line,” she said. Occupancy is currently around 90%.

Fifteen Fifty—where prices start at $3,350 for a studio and there is a $19,500 penthouse—has amenities such as a dog run, rooftop pool deck, screening room and sports lounge. During lockdown, the developer offered online workout classes and free cooking classes, with meal kits delivered to people’s doors. “In a time where there weren’t services outside of your home, that was impactful,” Ms. Shutler said.

More: Add a Summer Feel to Your Home

The George started leasing in March. It recently advertised two months of free rent plus a $2,000 rent credit on select.

Brookfield Properties

The George has a library, co-working space and rooftop lounge.

Brookfield Properties

Rob Chua, a 34-year-old nonprofit and public affairs consultant, said he was drawn to amenities at the George, but the hefty discount for a one-bedroom was a “huge factor” in his decision to rent. Previously, he was living with his parents elsewhere in the Bay Area and saving money to buy a place. Instead, he moved in to the George in May. The building has various amenities, including a gym, library, co-working space and rooftop lounge. Mr. Chua’s base monthly rent is $3,600, but it works out to $2,800 after concessions. He said he’s likely to re-evaluate his situation next year. “For the time being, it’s great,” he said.

In late May and early June, brokers and landlords said they noticed an uptick in the rental market as more people returned to the office. Alphabet’s Google has a hybrid work model, with employees returning to the US office a few days a week starting in April. In June, Elon Musk said Tesla Inc. and SpaceX employees must spend at least 40 hours a week in the office.

Mr Gaetani said his portfolio is still 6% vacant, three times a typical rate, but far from the 25% vacancy rate during 2021. Rents, however, are still down by 10% to 15%.

As in other cities, San Francisco tenants have reconsidered factors like outdoor space, layout and building size, brokers said, signaling a longer-term shift in how people want to live.

“People want buildings that are smaller with outdoor space, so they’re not landlocked in their apartment in the sky,” said Patrick Barber, a landlord and a regional president of Compass in California.

Until recently, Ms. Voss had a one-bedroom apartment in Russian Hill, asking around $4,000, that had been vacant for about four months. In mid-June, she found a tenant—bringing her portfolio to 100% occupied. Although demand is higher, she said, “residents are much more picky now than they used to be. They want more for less.”

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SAN FRANCISCO — A San Francisco woman was arrested this week after police said she flew to Detroit and rented an Airbnb in a nearby suburb to meet with a teen.

Stephanie Sin, 32, rented an Airbnb in Royal, Oak, Michigan, authorities said, according to media outlets. She ordered an Uber to the home of a 15-year-old in nearby Novi to pick him up, authorities said. The teen told his parents when the ride arrived, and they called the police.

Officials suspect she talked to the teen for more than a year.

Find out what’s happening in San Franciscowith free, real-time updates from Patch.

Online court records showed she was booked into the Oakland County jail Monday night on sex offense charges and using a computer in commission of a crime.

Novi police said Sin met the boy on an app when he was 14, WJBK-TV reported. Their talks escalated from the app to text messages and became increasingly more explicit, police said.

Find out what’s happening in San Franciscowith free, real-time updates from Patch.

Police told WJBK that Sin did not appear surprised when she was arrested.

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San Francisco Woman Rents Airbnb Near Detroit To Meet Teen, Police Say

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While rents declined in the early days of the COVID-19 pandemic, they have spiked by an unprecedented 17.1% nationally over the last year, according to Apartment List. At the same time, the only generation to record an increase in renting activity in the past year (up by 21%, per RentCafe) is Gen Z — a generation which is playing a big role in a seeming urban revival.

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Rent growth continued to increase in March, with Apartment List’s national index up by 0.8%. So far this year, rents are growing more slowly than they did in 2021 — however, rental prices continue to rise at a faster pace than pre-pandemic. In addition, over the first three months of 2022, rents have increased by a total of 1.8%. In March, rents increased in 93 of the nation’s 100 largest cities, with “Sun Belt markets in Florida and Arizona continuing to see some of the nation’s fastest growth,” per Apartment List.

The Miami metro has seen the nation’s fastest rent increase over the past six months, up 8%, and also ranks No. 1 for year-over-year rent growth, producing a 30% increase. Over the past six months New Orleans rents went up 8%, Orlando rents rose 6%, Tucson rents increased by 5% and Salt Lake City rents hiked by 5%.

In terms of supply, Apartment List notes there is a gradual easing of the tight market conditions that have characterized the rental market over the past year.

In the midst of these rising prices, one generation seems to be less affected than others. A RentCafe report finds that Gen Z represents more than a quarter of lease applications nationwide, mostly centered in large urban hubs that promise job opportunities. Gen Z residents may bring new life into cities once considered in decline due to the pandemic.

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In 2021, Gen Z rental hotspots included San Francisco, which saw a 101% increase in new apartment renters of this generation, per RentCafe.

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San Francisco’s popularity was echoed by Jersey City, New Jersey (with a 95% Gen Z increase over the past year), and Manhattan, New York, at a 65% increase. Rounding out the top 10 cities attracting Gen Z renters are Philadelphia, Boston, Arlington, San Jose, Seattle, and Minneapolis.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

The post Regardless of Rents Spiking, Gen Z Shifting to Main City Areas Like San Francisco, Manhattan appeared first on DAILY SAN FRANCISCO BAY NEWS.

SAN FRANCISCO, Calif. (KRON) – If you are thinking of moving to San Francisco, now is the time to get cheap rent.

Here, other counties in the Bay Area can move into the less restrictive red tier

According to the Zumper National Rent Report for March 2021, the average 1 bedroom price in SF is down 24.3% since last year.

San Francisco still led the way when compared to other cities, with the most expensive 1-room price at $ 2,650.

Zumper

Reports throughout 2020 show that prices in cheaper cities have steadily increased, while prices in expensive cities have decreased dramatically. However, according to Zumper, these trends have slowed down significantly.

Zumper

“In historically expensive coastal cities, rents have continued to fall significantly compared to the previous year. At the same time, rents in historically cheaper cities throughout the Midwest and Southwest have increased significantly compared to the previous year, ”says Zumper.

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The rental market is in turmoil after jobs and people have left and pricing has kicked in. Falling rents are a market-based solution to the “housing crisis”.

By Wolf Richter for WOLF STREET.

The average asking rent for one-bedroom apartments in San Francisco, after the two highly acclaimed and advertised increases in a row, fell 2.5% from June to $ 2,720 in July, according to Zumper. The median asking rent has fallen by 27% since June 2019:

There is a peculiar phenomenon in the local media in San Francisco: when rents soared a few years ago, they lamented the “housing crisis” in which teachers could not afford to live in the city they were in taught. And they asked for subsidies to resolve this situation. Then rents fell from mid-2019, and instead of praising this as a market-based solution to the housing crisis, they portrayed it as a dark, nasty phenomenon that needs to be stopped. This was particularly the case at the end of last year.

And when rents rose for the first time in May and June – we’re talking about “rent issues,” a market issue we’ll get to in a moment – however, the local media hailed it as the great San Francisco recovery it would make the housing crisis worse that they had previously lamented. And now the asking rents have fallen again …

The rent drop is the market-based solution to the housing crisis in San Francisco a few years ago. When a place gets too expensive and the narrative changes, when jobs disappear because companies and people leave, prices adjust. San Francisco has seen this before.

Don’t get me wrong: $ 2,720 in median asking rent for a one-bedroom apartment is still ridiculously expensive, and it makes San Francisco the most expensive rental city in the US, ahead of New York City, even though there are zip codes in Manhattan and Los Angeles, rents higher than San Francisco’s most expensive zip code.

So the $ 2,720 rent is still not a bargain, even though it’s 27% lower than it was two years ago.

There are all kinds of data – including USPS change of address data, population estimates from the California Department of the Treasury, and labor force data from the California Department of Employment Development – showing that the population, including the working population, of San Francisco has declined, even as new apartment buildings completed and inventory added to the market became. This changes the dynamics of the market.

The Treasury Department reported in May that after slowing growth in 2018 and 2019, the population of San Francisco County fell by 1.7%, or 14,800 people, in 2020, bringing the population down to 875,010 – the lowest level since 2015 :

Despite a population decline of 14,800 people in 2020, a total of 4,048 new residential units were completed and brought onto the market, according to the Ministry of Finance. A population decline combined with an increase in the housing stock has beneficial market-based effects on a crazy rental market.

Other metrics are California EDD job and workforce data. The number of city residents with jobs, including those outside the city, fell last spring and has recovered somewhat, but in June it was still 49,400, or 8.8% lower than in February 2019:

The labor force – residents of the city who are either working or actively looking for work – plummeted in the spring of 2020 and continued to zigzag as people left the city until they bottomed out in January 2021.

The labor force has started zigzagging, but in June it was still down by 32,400 people from February 2019.

This decline reflects some people who have stayed in the city but retired or been quit or fired but are not looking for work, and reflects people who have left the city. This is also changing the dynamics of the housing market:

Now don’t get me wrong: San Francisco is still an immensely overcrowded and overcrowded city. It’s just a little less crowded than before.

There are now signs that net brain drain – more people leaving than arriving – has started. Some people are still leaving, others are returning, and some new people are being hired by employers.

Eviction bans still apply in San Francisco. There are programs that use tax dollars to pay rent. This further distorts the view of the rental market. When these eviction bans and landlord subsidies come to an end, there may be another wave of people moving out, which could further stimulate the housing market.

This is a market in turmoil. Tenants are buying cheaper and better places, so there is a lot of churn. Landlords try to fill their units. But some can’t make huge compromises on their asking rents if they have to stay on line with their lenders. Incentives help overcome this problem.

Then there is the following: when rents fell, some of the people who had two, three, or four roommates crammed into one apartment could sprawl a bit and create additional demand for rental units that was not driven by immigrants to the city, but was driven internally.

Pricing with Asking Rents.

“Demand rent” is the rent that landlords offer for their available rental units through various housing supply services. Computers collect asking rents from all major online sites. The “request rent” is therefore not based on surveys, but on the basis of asking rents.

But the rent does not say which rent landlord and tenant have finally agreed on and which incentives are associated with it, such as “two months free” or even “three months free” or “six months free parking” or whatever.

If a one-year lease includes “two months free”, the lease is 14 months for the price of 12 months and the monthly “effective rent” has only decreased by 14% of the rent in the lease. Incentives are on everyone’s lips in San Francisco. And they are not reflected in the data.

And the asking rents do not say whether these apartments will be successfully let at these rents or whether they will remain empty.

So asking for rent is a measure of pricing. You bring a rental unit to market at a certain asking rent, perhaps an ambitious asking rent, and if no one shows up, you lower the asking rent.

A “medium” asking rent means that half of the units on the market were advertised with higher rents and the other half with lower rents.

So the median asking rent is an indication of where landlords are hoping for the market, and when incentives are involved the market will be much lower. And what we’re seeing in San Francisco is a market that has changed dramatically in the past two years, and now landlords are in pricing mode.

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The post No, Rents Are Not All of a sudden Spiking in San Francisco: They Fell Once more in July and Are Down 27% since June 2019 appeared first on DAILY SAN FRANCISCO BAY NEWS.

San Francisco rents have rebounded dramatically this year, according to a new report from Apartment List. In June, average rents rose 17 percent year-over-year, according to data gathered by the rental listings website. From May to June alone, rents rose by almost 3 percent.

Despite the spike, the median rent of around $ 2,300 in June 2021 is still 14 percent below what landlords got in March 2020 when one-bedroom apartments rented a median of more than $ 2,600 per month. Then came the steep decline as tenants fled the city in search of more space and cheaper apartments elsewhere, with the average low in December 2020 under $ 2,000 a month according to Apartment List data.

The rent increases can’t come soon enough, said Eric Andresen, owner of West Coast Property Management, which manages around 1,600 rental units in San Francisco. As early as April 2020, he saw apartments standing empty, and in June the vacancy rate really increased. By October, more than 20 percent of the units he managed were vacant. “Our vacancy rate before COVID was around 2 percent,” he said.

Residents who stayed in the city began inquiring about rent cuts, which he seldom granted due to the city’s strict rent control requirements, although he helped many with their applications for state and local relief funds. Even the “first month free” offers often seen in other areas are not advisable in the Bay Area, he said.

“Nobody should offer offers, deadlines, end of sentence,” he said. “Those who did it will be stung by it in the near future. The rental committee has already decided that every deduction, every free rent or even future free rent represents a reduction in the basic rent, the tenancy. “

As rent cuts and other incentives to stay in their current apartments are unlikely, many Andresen tenants have taken the opportunity in recent months to move to larger or modernized apartments. He also saw many residents drop out of roommate agreements.

“I think we see a lot of roommates transitioning from shared flat to single life,” he said.
Andresen said he believes about half of the new leases for his apartments this year are renters who are “emerging” from their previous housing situation. The other half are new tenants arriving in town as the employment situation improves and offices reopen for personal work. Renovated one-bedrooms were the most popular for both groups, he said.

The upward trend extends to other metros in the Bay Area. Oakland was still down 12 percent and San Jose was down 8 percent, which is among the largest declines in the country. But these areas have seen a recovery, and the introduction of vaccines and subsequent reopening are making the city more attractive.

According to Zumper data, one-bedroom rents in San Francisco rose 5.3 percent between May and June 2021, compared to just 2.5 percent for two-bedroom apartments. That was a bigger jump than Oakland or Santa Clara, although those areas were also improving.

“The latest data leaves no doubt that after a year of unprecedented drops, rents in the Bay Area are now rising,” said Jeff Andrews, data journalist at Zumper. “By 2021, rents in San Francisco had decreased by about 25 percent. With workers returning to the offices soon, rents are expected to continue to rise over the next year. Will the average one-bedroom return to $ 3,500? That remains to be seen and will likely depend on the extent to which tech companies adopt permanent guidelines for working from home. “

Andresen said vacancy rates in his units are currently around 10 percent and rents are still falling, but he doesn’t think it will stay that way for long. That’s partly because COVID has made privacy a much more important convenience than it used to be.

“We are gradually climbing out of the COVID hole and I think we’ll see how the market will rebound pretty quickly as we still have a significant shortage of available housing and much of what used to be shared apartments is single dwellings has become. “he said.” Demand will surpass pre-COVID levels within a year I think and rents will quickly return to levels, if not higher. “

Contact Emily Landes

The post San Francisco rents on the rise appeared first on DAILY SAN FRANCISCO BAY NEWS.