Source: The San Francisco Standard —
With mounting layoffs, sky-high interest rates and empty office buildings, the woes of San Francisco’s struggling tech-driven economy make headlines every day.
Yet, as the city’s population shows signs of a comeback, what is the net impact of these opposing trends on the residential real estate market in the city?
The latest data show that the economic downturn has negatively impacted residential real estate across the city with stagnating sales, falling rents and certain areas bearing the brunt of the decline. But ever-optimistic real estate agents say the market may be ready to heat back up.
Rents Are Down in Most SF Neighborhoods
Rent prices are falling throughout San Francisco, recording a 1.7% dip in December, over twice the national rate of decline. And median asking apartment rents continued to drop into January 2023, according to the SF Controller’s Office. Though it’s typical for rents to decline in the fall and winter before recovering in the spring and summer, city economists say SF’s recent rent fluctuations reflect how economic challenges continue to influence renter and buyer behavior.
“In late 2022, [rent fluctuations] were worse because of concerns about the overall state of the economy, consumer confidence dropped and household formation slowed—all of which limited rent demand more than normal,” said Ted Egan, chief economist at the Controller’s Office. “SF dropped by more than the average, but not the worst in the country.”
And in what many say is a continuation of pandemic-era challenges—such as the 2020 exodus of young adults from the city and increased concerns about crime and drug use—rental prices continued to remain stubbornly below pre-pandemic levels in downtown regions.
“I know a lot of owners that have classical Beaux-Arts buildings that, 10 years ago, everybody wanted to live in—Lower Nob, Polk Gulch, that area into the Tenderloin,” said Janan New, executive director at the SF Apartment Association. “The quality of life is not as great in those neighborhoods as it used to be, and a lot of people have like a 50% vacancy factor and can’t find tenants to move in.”
Instead, real estate and housing markets in low- and middle-income neighborhoods located in southern and western SF fared better in the last year. The Sunset, for example, emerged from 2022 with rents that were 101% of 2018 levels—a metric referred to as the Rent Recovery Rate. The Sunset also reported one of the greatest year-over-year increases in average rent.
