IRR-San Francisco Mid-Year Viewpoint 2015 Local Market Report - Multifamily
The San Francisco apartment market remains one of the strongest in the nation. Despite large additions to supply entering the market over the past 12 months - more than 2,200 units city-wide - occupancy rates have remained above 95%. Moreover, the leveling off of rental rates experienced in early 2014 evaporated by summer. The 12-month average rental rate increase has been in the double digits for San Francisco, with local brokerage firms predominantly reporting 10-15% growth.
This indicator is inflated beyond that which is caused by supply and demand by two significant factors. First, inventory increased by 10%, and all of these units are Class A, driving up the average rent by virtue of improving the overall quality of the supply. Second, many of the large new projects have been offering heavily discounted pricing during pre-leasing, particularly prior to completion, then increasing rents radically once stabilized.
We have seen published asking rents increase more than 20% in such projects year over year. A sampling of rent data from already-stabilized Class A assets in this market from IRR's files suggests more typical market rent growth in the 6-10% range for the past year. The strong employment market, particularly the tech sector, continues to be the major demand driver for San Francisco apartments. Mid-Market, Mission Bay, and SOMA/Transbay neighborhoods continue to be hot spots for new development. Going forward, affordability and the large pipeline of new construction will continue to pose a threat to softening apartment market conditions. However, the now-stronger for-sale residential market should serve to divert some of the new multifamily residential supply away from apartment.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.