Continuing our analysis of Paragon’s San Francisco apartment market report
Yesterday we began a discussion of the San Francisco apartment market, reported by Paragon’s November 2014 San Francisco Bay Area Apartment-Building Market Report. Let’s continue that conversation, shall we?
There may be a shift in terms of the supply side. Socketsite reports: “With a strong pipeline of new developments racing to hit the market in San Francisco and at a pace which will ramp-up over the next 18 months, the apartment vacancy rate in the city has ticked-up for the second quarter in a row to just under 5 percent and the pace of rent increases has slowed.” SocketSite also says that, at the same time, vacancy for East Bay apartments is at a record low of just under 3 percent and that the East Bay’s development pipeline is a few years beyond the city’s – in short, expect rents in the East Bay to go up.
Reis also notes that San Francisco is seeing more construction sooner as well as a rising vacancy rate projected for 2015 to 2016 as compared to the East Bay. It’s important to remember that the Reis charts apply to the three-county San Francisco and two-county East Bay metro areas. Also, note that Reis isn’t predicting a rent decline per se, but rather a decline in the rate of rental-rate appreciation to about 2 to 4 percent per annum in the coming five years. That’s well down from the incredible appreciation seen in local markets over the last four years as the market has continued to stabilize.
In terms of commercial rents, we’re seeing a similar dynamic in the city’s commercial leasing rates, which have just gone above the highs seen in the dot-com era. While SocketSite reports that there are just over 4 million square feet of office space under development in the city – the largest such pipeline in more than three decades – most of that pipeline won’t be ready for occupancy until after 2015 and more than half has already been speculatively pre-leased by firms such as LinkedIn and Salesforce.
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