What’s going on with the San Francisco apartment-building market?

Paragon has just released a report on the San Francisco Bay Area apartment-building market, and there are some intriguing findings there. This report covers the first quarter of 2015 and looks at factors including market activity, inventory and sales, median prices and cap rates, average dollar per square foot values, price per unit and rental rates.

We’re seeing two major factors that underlie the Bay Area real estate market: population growth that’s driven by a substantial increase in well-paying jobs as well as the incredibly inadequate housing supply available to meet a surging demand. While developers are jumping on the bandwagon to build new housing stock, we’re looking at another four or five years on average for these projects to move from initial plan submission to project completion. Also, keep in mind that the great majority of new housing that’s planned or under construction is extremely high-end, so expect that the desperate shortage of affordable housing will continue to persist in our fair city.

Let’s look at some fundamentals of the Bay Area (and particularly San Francisco) apartment market. It’s a boutique market that’s dominated by sales of smaller, older buildings. We’re still seeing the highest median sales price and price per unit in the Pacific Heights-Marina district, with the bigger buildings of the Downtown-Tenderloin area second in median price but far lower on a dollar-per-square-foot or price-per-unit basis. Across the bay in Oakland, values are still rising, but remain far below those found in the city.

That said, we’re seeing huge appreciation on both sides of the bay, particularly over the past 15 months. We saw this begin to get steady over the course of last year, with a continuing rise this year. Rents are also continuing to increase, with a 13 percent year-over-year appreciation in San Francisco’s average asking rent (despite a slowing in these increases over the past two quarters) and an increase in Oakland’s rents as well to the tune of 22 percent year over year. We’re seeing the nation’s highest rents in San Francisco – even outpacing New York City by quite a bit.

Tomorrow we’ll continue our look at this report.

Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call 415-577-0809 or email cblase@paragon-re.com. www.ceceblase.com