San Francisco Rents Steeply Decline

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San Francisco rents have dropped faster than any other major city in the country. According to Zumper’s October rent report, which analyzed data from more than one million listings nationwide, rents in the City have declined by 20 percent since last year.  Zumper, which vends apartments and houses online, found that an average South-of-Market studio could be leased for $2,056, a one-bedroom, $2,850 and a two-bedroom, $3,650.  Prices were somewhat higher in Potrero Hill, where studios averaged $2,345, one-bedroom, $2,907 and two-bedrooms, $3,750. Among the most expensive two-bedroom rents were in Mission Bay, at $4,372. 

Rental listings on Craig’s List found similar prices. In SoMa a 466 square foot studio at 855 Brannan was available for $2,080 a month with two free months. The unit features a washer/dryer, hardwood floor and modern appliances, with an onsite rooftop terrace and fitness center. A 700 square foot one-bedroom, one bath unit with washer and dryer at 217 Arkansas Street was listed for $2,950 month. Accompanying photographs showed an older duplex building, carpet and linoleum floors with a dated kitchen and finishes. 

At the Metro at Showplace Square, 670 King Street, a one-bedroom, one bath unit with hardwood floors and washer/dryer was available for $2,900, including a parking space, with “move-in special of up to six free weeks.” At Channel Mission Bay, 185 Channel Street, a 745 square foot two-bedroom, two bath unit with washer/dryer, hardwood floors, modern appliances and upscale finishes was listed for $2,905 a month. Amenities included a fitness center, outdoor swimming pool, patios and rooftop deck.

“One of the biggest outstanding questions is the degree to which COVID will shift preferences away from cities,” Apartment List research associate Rob Warnock wrote in “An Urban Exodus? Not Yet,” posted on the Apartment List’s website in July.  Based on an analysis of Apartment List data Warnock found “subtle regional shifts, but no overwhelming evidence of a large-scale urban exodus” in large cities in general, and in San Francisco specifically. 

The data indicated a small decrease in the number of searches by San Franciscans looking for residences outside the City. Rent declines appear to be related to significantly lower inbound migration. An August article, also co-authored by Warnock, noted that “…San Francisco saw year-over-year drop in relative inbound migration: the share of renters looking to move from other parts of the country. From April through early-August, 35.6 percent of inbound searches to San Francisco came from outside the metro.” 

Although interest in San Francisco was still strong by national standards, it was down from 47.2 percent in the same time period last year.  Workers interested in the City’s desirable tech jobs “may be delaying their moves while their employers are fully remote,” according to Warnock.

According to Warnock, “a lot of movement is taking advantage of dropping prices, moving to better apartments for the same price”, within San Francisco. Likewise, rents typically drop in winter; given the public health crisis they might not reach bottom until the spring. In the long-term, Warnock believes that cities will continue to function as cultural centers and will be desirable places to live.  When San Francisco’s unique amenities become accessible again it will likely experience a rebound. 

In addition, Warnock suspects that employees will ultimately return to their offices as employers confront the drawbacks of working at home, such as social isolation and decreased productivity. Likewise, any expectation that staff will be able to maintain their high San Francisco salaries while “working remotely in Boise” will likely be dashed, as companies move to make salaries commensurate with place of residence, rather than the remote urban workplace location. 

“I don’t think San Francisco fits an urban exodus model,” said Warnock. “I think San Francisco will continue to see growth, but at a lesser rate” after years of being over-priced “the residential market feels like it is moving to a more equitable market”.

A 15-year veteran of San Francisco’s residential property management sector, who is currently a portfolio manager at a company that oversees 4,000 rental properties in the City, largely agreed that rent reductions will continue for a while, but that in the long-term rents will rebound, thought probably not to previous highwater levels.  

The professional, who preferred to remain anonymous, also pointed to the homeless epidemic as a problem that continues to dampen San Francisco rental prices. Public health policies have worsened the situation, resulting in larger, more permanent, encampments. SoMa has been especially affected; previously desirable properties have been rendered unrentable by a nearby encampment. Two apartments in one building that would’ve rented quickly had two viewers in two months, despite 30 percent rent reductions. “I cannot get people to come by, because of the encampment” reported the portfolio manager.

While the vacancy rate of his portfolio doubled in recent months, the industry veteran agreed that many of those moving are taking advantage of declining rents to find larger apartments elsewhere in the City for the same price. “I see the forwarding addresses and the majority are for other San Francisco addresses,” he said.  

Growing vacancies have prompted incentives by property owners, such as offering a month or two of free rent, cash rebates or gift cards. However, the portfolio manager finds this trend problematical, as it takes landlords into legally troubled waters, a view shared by Daniel Stern, principal at the real estate law firm, Wasserman-Stern. Stern noted that the San Francisco Rent Board and local courts have found that inducements are generally considered a reduction in a tenant’s base rent; under rent control law landlords cannot later raise rents from these discounted levels.  

“Landlords are doing it anyway…out of desperation,” said Stern. 

Stern noted several recent and pending legislative developments that could have far reaching effects on the rental market, including Proposition 21, which seeks to implement rent control on vacant properties.  Proposition 15, which’d raise taxes on commercial properties valued at $3 million or more, and state and local laws that temporarily ban no-fault and non-payment evictions, could also influence rental markets.

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