Easing of rent increases brings a bit of relief
San Francisco rents are still stunningly expensive, but they seem to have plateaued — thanks to new construction, seasonal factors and the “Twitter effect.”
When Twitter announced in January it would be subleasing some space in its Mid-Market headquarters, the move caused other companies to rethink their expansion plans, said Samantha Chandler Duvall, a vice president with Chandler Properties, which manages about 5,000 rental units in San Francisco. That trickled down to the office and ultimately the apartment market.
“Commercial office brokers get worried, smaller tech companies get worried, venture capitalists get worried — whether it’s legitimate or not,” she said. “If they are not hiring, should we be hiring? That’s when it starts to affect apartments.”
The slowdown started late last year. “It’s more a lack of growth (in rents) than an actual decline,” Duvall said.
The average asking rent in San Francisco for all property types — ranging from studios to three-bedroom places — hit $3,620 in the first quarter, according to Real Answers, a Novato research firm. That was up a mere $4 from last year’s fourth quarter and $3 from the third quarter — in other words, flat.
The rental market is seasonal, and the winter quarters are typically the slowest. But rents were up only 4.7 percent in the first quarter over the same period last year, compared with a 13.2 percent increase between the first quarters of 2014 and 2015 and a 9.4 percent
increase the period before that.
For the nine-county Bay Area, rents were 7.1 percent higher in the first quarter compared with last year’s first quarter. But that was down from a 13.4 percent increase the previous year, according to Real Answers, which surveys apartment buildings with 50 or more units every quarter.
Finding a place in San Francisco “was not nearly as bad as I was expecting,” said Sydney Cohen, 22, who started apartment hunting with two friends in mid-February. All three were living with parents in Marin County and commuting to jobs, so they weren’t in a huge hurry.
“The most we wanted to pay was $1,500 each. We saw about five places in our price range. The place we ended up liking the most was the cheapest,” Cohen said. It’s a two-bedroom, one-bathroom apartment on Russian Hill for $4,000 a month, and they moved in the first weekend in March.
‘So much simpler’
“It’s really affordable, by San Francisco standards,” she said. The roomies are using the living and dining rooms as bedrooms and the smallest bedroom as a common area. “It was so much simpler than I had anticipated — almost too easy,” she said.
It helped that she was looking during the slow season and not in neighborhoods favored by tech workers — namely, South of Market and along the tech shuttle bus routes.
“We are definitely seeing it taking longer to rent or turn over units,” said Bill Meyer, whose firm WM Properties manages apartment buildings, mostly in Pacific Heights and Nob Hill. “What used to take a few days (to lease) is now taking a few weeks. Sometimes we have to lower our asking price.”
Meyer has a Nob Hill studio apartment with a sleeping alcove on the market for $2,495 a month. After three weeks and two price cuts of $100 each, it’s still vacant.
Millennial market
In some cases, rather than cutting the rent, Meyer will convert a dining room into a bedroom by adding a closet and door. “Then we can ask more rent,” he said. “The Millennial kids seem to not spend a lot of time in the living room. The bedroom becomes their place. And they don’t eat at home a lot.”
Meyer said the rental market started to soften in his neighborhoods around the middle of last year. He doesn’t blame the economy — the unemployment rate in San Francisco was 3.2 percent in March, down from 3.7 percent a year ago, according to the Employment Development Department.
New construction could have had an impact. Eight apartment complexes with a total of 2,249 units started leasing in San Francisco last year.
But Meyer thinks the main reason rents are leveling off is that after five years of (mostly) stratospheric increases, they had simply become unaffordable, even for techies.
In the suburbs
The same is happening, to a greater or lesser extent, in San Francisco’s suburbs, said Jeff Bosshard, president of multifamily operations for Woodmont Real Estate Services in Belmont. His firm manages about 9,000 rental units in every Bay Area county except San Francisco.
The most competitive market (from a landlord’s perspective) is San Jose, which is expected to add a total of 7,000 units in 2015 and 2016. To fill up new buildings, some developers are offering “very aggressive specials,” Bosshard said. One building his firm is leasing, the Marquis, is offering two months’ free rent.
This puts pressure on all landlords, as young, rootless tech workers jump from one new building to the next. “They are ready, willing and able to chase the deal,” he said.
Landlords could face more pressure if a boom in condo construction makes it easier for people to buy than rent, he said.
In the other parts of the Bay Area where his firm does business, “the pace of rent rate increase has slowed a bit, but they are still strong,” Bosshard said.
Going into summer, “I think we will continue to see the pace of increase slow,” he said. Occupancy rates might inch up, but “I still think affordability is an issue.”
“We are definitely seeing it taking longer to rent or turn over units.” Bill Meyer, WM Properties