2015 San Francisco Rent Market illustrated in Charts

27 Jan 2015 San Francisco Rent Market illustrated in Charts

Thinking of purchasing a 2-4 multi-unit apartment building as a rental investment? Here are some charts summarizing recent San Francisco apartment rental values. Interest rates are low and rents are extremely high, this could be a perfect opportunity for investment.

Residential Rent Trends & Comparisons

The city has seen a staggering increase in market-rate rents over the past 6 years, making it the most expensive rental market in the country. However, some firms that track average or median rents have suggested that SF rents have recently either plateaued or ticked down . Rents continued to increase in Oakland, which though expensive by any national measure, is still much more affordable than San Francisco. It is too early to come to any conclusions as to whether a supply-and-demand, affordability, or high-tech hiring inflection point has been reached in San Francisco, as market lulls and fluctuations are not uncommon.

In the first chart below, note that San Francisco rents fell far more after the dotcom bubble popped in 2001, and the resulting loss of thousands of high-tech jobs , than after the much larger, financial-markets crash of 2008. There is much vehement disagreement right now as to whether there are or are not meaningful parallels between the current high-tech boom and the earlier dotcom boom.


San Francisco Employment

Increased employment, driving both a growing population and growing wealth, is probably the single greatest factor behind the city’s housing market. Notice how closely the chart below mirrors the earlier chart on annual rent appreciation.



Residential Rents

Average, asking residential rents ticked up yet again in Q3: Per RealFacts, San Francisco has seen a 10% year-over-year increase to hit a new record of $3400; San Mateo and Santa Clara had an 11% increase; and Oakland a whopping 18% annual jump as of Q3. According to the analytics firm Reis, the Bay Area has 3 of the 4 hottest rental markets in the country as measured by apartment rent increases. However, there are tentative signs of slowing appreciation in the city.


Rent per Square Foot

Typically, the smaller the unit, the higher the rent per square foot. Smaller apartments turn over more frequently entailing higher management and vacancy expenses, but in rent-controlled environments of quickly appreciating rental rates, turnover has its advantages. In San Francisco, using a conservative gross rent multiple, the turnover of a nice 1 or 2-bedroom apartment that has been rent-controlled for many years under a single tenant, can increase the property’s value by hundreds of thousands of dollars when the unit is re-rented at market rate. “Upside potential” in rents is an important part of the valuation process of rent-controlled buildings, even though it’s not known exactly when that potential might be realized.

This chart averages the data of the greater “metro areas.” SF neighborhoods such as the Marina, Russian Hill and South Beach achieve much higher rent-per-square-foot figures than the general metro area.



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