Asking Rents in San Francisco and Oakland Drop, Listings UpApril 3, 2020
Having already started to slip earlier this year, prior to the COVID-19 hit, the weighted average asking rent for an apartment in San Francisco dropped around 2 percent in March to $4,000 a month, which is around 1 percent lower on a year-over-year basis and 10 percent below its 2015-era peak of around $4,450 per month, with the average asking rent for a one-bedroom in the city down to around $3,475 per month (which is around 4 percent lower than at the same time last year and 5 percent below peak).
At the same time, the weighted average asking rent for an apartment in Oakland dropped down around 3 percent in March to $2,600 a month, which is less than a percent lower than at the same time last year but around 8 percent below its peak in the second quarter of 2016, with the average asking rent for a one-bedroom down to $2,300 a month (versus closer to $2,500 a month at peak).
As such, the premium for a one-bedroom in San Francisco as compared to Oakland has ticked up to 34 percent (having narrowed to 29 percent at the end of last year but averaged over 40 percent in 2015).
Our latest trends analysis was based on pricing data from nearly 4,300 past and active listings for apartments in San Francisco and Oakland combined, the number of which has jumped over the past month, and for which the “weighted average” apartment totals 2.3 bedrooms when counting a studio as having one.
Comments from Plugged-In Readers
When all this is over, who knows if and when the tech, retail and hospitality industries will recover. Perhaps we’ll see another “bubble burst” which, as we may all recall, cleared out the city. My guess is that Covid-19 will have the same impact and therefore once again decrease rents.
But rents increased and home prices decreased during the 2008 recession because people lost their homes and needed to move into rentals. Will the same happen this time?
Pre-covid19 people were leaving the city at an increasing pace with the population near decline. Now startups are blowing up and laying off left and right. This will only increase the depopulation here. Won’t just be a shift from own to rent.
Start-Ups Are Pummeled in the ‘Great Unwinding’: “Dozens have laid off thousands, slashed costs and changed their businesses to try to survive the pandemic. All that may not work.”
I’m an angel investor in tech companies. Based on what I’m seeing, sure, a lot more of the smaller tech firms will shut or cut the size of their teams. However, this time around the big companies are growing so fast they will eat up every space they can find. I wouldn’t be on a crash, but a correction.
If you’re Google, Facebook, Salesforce, etc. you hiring folks in other cities because of the housing issue… those jobs will now come back to the bay area.
hope everyone is staying safe
Did you sell your SF house yet?
I was here in 2008, and rents fell about 25%. There are a large number of east coast and mid west transplants who hate the west coast but show up here for the opportunity. When the opportunity evaporates, so do they. Rents did not rise in 2008, I can assure you.
This is going to be even worse for the bay area because this is a job shock. In 2008, it was a financial crisis that rippled out to other industries. This is a complete stop in a much wider range of industries.
Venture capital has already been turned off. No new companies will be funded to replace the ones that die naturally and the VC community will rally around the top 10% of their portfolio to keep them alive while the other 90% will be told to sink or swim. The vast majority will sink. The 10% who get funding to stay alive will be told to cut salaries and headcount by 30-60%.
But this is going to be much, much worse in San Francisco, because every family living in a place without a private yard for their kids to play in are going to leave. Other people will start to realize that living in a much larger place in a cheaper area is a better option if you’re going to work from home for the next 18 months anyway. The rest will realize that there isn’t much difference between here and bumfluck Nebraska when the restaurants, bars, theaters, and everything else is closed, except that you can put about $2000/mo in your pocket and work from home or stay on unemployment and live in a place that’s twice the size. In 18 months, you’ll have $36,000 saved.
What typically happens is the the landlords hold the rents mostly steady, thinking if they can just lock in one last sucker for one year, they’ll drop the rent later. But of course, the number of listings shoot higher and higher and the number of landlords who can’t stomach the vacancy and cave grows and grows. You can usually negotiate significant discounts from the asking price after a few months and then a few months later the asking prices drop. In 2001 I offered about 60% of the asking price after watching a place drop and drop the asking and they took it. They needed the money. The family that owned it was having their own financial problems from the bust and after a few months, they were at wits end and I pounced.
Gee could you try and be a little more pessimistic ?? Maybe we should convert ALL bridge lanes to outbound?? Yes, of course reconsideration of SF’s peculiar amenities – or really lack of same – will occur; prescient people brought that up weeks ago but movement ‘en masse’ is unlikely: no one can move right now – to Nebraska or anywhere else – and won’t be able to do so until restrictions are lifted…at which point the panic will yield to rational thinking.
And offsetting all this course, is that fact that CA in general – and the Bay Area in particular – is doing a lot better than many places pandemic wise; the reasons for that – good governance (yeah, someone finally rose to the occasion) and an abundance of healthcare facilities won’t be lost on people.
So yeah ,there will be outflow, and given the effect that even small changes at the margin can have on prices, we may see leveling or – GASP!! … reduction – in home prices , but SF isn’t going to depopulate. Some people, those who buy houses to live in rather than flip. might say that’s a good thing…yeah I know, crazy talk.
Keep in mind, Babies Kept San Francisco’s Population from Falling in 2019. And in fact, the adult population actually declined.
Et tu, SS?? What I’m keeping in mind is that SF lost north of 100K residents in the four decade after WWII and it didn’t generally equate to a collapse. I’m not questioning that there will be either population loss or declining values – heck, I promoted the notion in the first place ! – only that the breeze stirred up from expats moving will ever equal the cruel wind that regularly sweeps in off the ocean.
You must not have been to Nebraska.
Nebraska may not be the best example. Places like Boise, Flagstaff, Missoula, Mobile, Reno to name some will likely see an upsurge in residents and businesses as a result of this. The peripheral exurbs also as well as “old” Midwest cities such as Cincinnati and Cleveland.
What about the great Shangri-La of Seattle, Dave?
Dave, do you mean Mobile, Alabama where they just instituted a quarantine weeks too late and where the beaches were still open? Real estate will be cheap there if they’re all dead, true, but there might be other factors which make it just a touch less appealing.
Rents certainly did not increase during the 2008 bank led mortgage heist. They increased after the market began to recover in 2010 and rose exponentially ever since.
Owning rentals in California and especially places like the Bay Area has been dicey for years now. The current situation will make such investments even riskier. As it is, the CARES act prohibits eviction for non-payment of rent through July 25th for properties with FHA loans. If things don’t turn around that date will be extended. Not to mention restrictions imposed at the state or city level in California.
Many businesses will not reopen. There will not be jobs to go back to for all who have lost jobs. The exodus out of the Bay Area will accelerate. Especially for service/hospitality industry workers who barely eek out a living here as it is. Rents will drop as the pool of renters contracts. Home prices too will drop as higher paid workers leave for less dense urban areas and as tech companies continue to expand/relocate out of the Bay Area. The tele-working technologies being used across the board now by many tech firms, and others, will in part survive the crisis. Another factor that will push workers out of core metro areas – if nothing else to the periphery of those metros.
I disagree with those who say there will be a V shaped recovery when this is over and, if there is not, there will be a sustained and significant impact on places like the Bay Area, NYC and such.
Rental net income as a fraction of economic activity recently hit an all-time high. To the extent that being a rentier can have been described as “dicey”, it was objectively less dicey than it had ever been before. Every capitalist enterprise comes with risk. It happens that renting out property is less risky than many enterprises, so when landlords finally get hit it seems exceptional.
I agree with Dave. Many businesses will not reopen. When many do, the consumer mindset will be different. Retail stores were already dragging from on-line sales. We have the negative wealth effect from the stock market drop. Real Estate will slump, rents will drop, and the hotel industry will be very slow in recovering. This is not a “V” shaped recovery, or even a “U” … more like an “L”.
The Bay Area will get hit hard, but will it be hit harder than other places? Vegas and Phoenix will be murdered. Those places are way more dependent on tourism than we are.
Yes, and if you scroll up to the top of this thread you can read a summary of why from tipster. It’s not just about tourism (although that is a significant part of it).
To recap: the key is that the cost of living in general and the cost of either renting or buying a home in “other places” in the U.S. are substantially lower.
Since almost every white collar worker is being forced to work from home now, shortly after the current crisis is over many of these workers will wake up and realize that they can move anywhere and as long as they have a copy of zoom, they can do their current job or something like it from some “other place” that is substantially cheaper to live in. Even if they have to take a pay cut, if they plan their move strategically they will still come out ahead and with a higher quality of life.
Since the only thing keeping these workers in the Bay Area was the number of companies employing white collar workers like themselves and offering job opportunities, when venture capital stops raining down on the Bay Area it’ll kick off a slow exodus of high-earning workers. Companies needing to cut costs like the absurd amount they are paying commercial landlords for office space will follow them out of the area, to “other places”, where the cost of office space is substantially lower.
Because costs in the Bay Area are much higher than those “other places”, in order for costs to get closer to an equilibrium (I am not saying that the Bay Area will be as affordable as other places such as Vegas and Phoenix , but costs will be closer than they were two months ago) the Bay Area is going to get hit harder than those “other places”.
There must be _some_ reason other than just income and expenses why people don’t readily move. It was always possible for me, at my previous job, to move to the Pittsburgh office where the pay was 5% lower and the cost of living was 60% lower, but nobody ever did that, probably because Pittsburgh sucks. Now, if I could do my job from rural Amador County then I might, but the fact remains that internet services outside of major urban areas is terrible, bordering on useless. So, there might be reasons why people don’t immediately disperse to the lowest-cost location.
At your previous job, moving to Pittsburgh was a career-limiting move because you would be sidelined from the important decision-making which took place in Mountain View or Menlo Park or SF.
The majority of senior tech management has put roots down in the Bay Area and they want their employees close by because they’ve found it to work better, time and time again. In two years there will be a vaccine and people will stop pretending that videoconferencing is good enough for important decisions.
What you are both missing is that there has been an 8 year long decline in net migration to the bay area. Net migration for the bay area went negative in 2018. For SF it just went negative and the adult population of SF declined. All of this before the CV19.
This has been a long term trend any it seems very likely that the CV19 will just accelerate it. People are looking even harder at the choice of living in dense urban areas. People and companies are seeing how remote work can be productive.
I agree with heynonnynonny that for some teams face time is critical. But the headcount of critical teams (in stable companies that can survive & thrive in the coming years) is a small fraction of the bay area population. Many workers are not essential and many companies are on the razors edge of survival.
We won’t see the Bay Area economy go to zero or anything absurd like that but we will see a lot of the fat getting trimmed. And there has been a lot of fat growing over the last ten years.
Contrary to Tipster, I would suggest that perhaps there actually is a difference between living in San Francisco and living in Bumf*ck Nebraska.
And I think tipster and everyone else commenting on this thread would agree with you. The main thing we are arguing about is whether or not the premium, in terms of living costs, required to live in San Francisco over a city in Nebraska delivers enough positive utility to the San Francisco resident to make the vast majority of them not want to relocate once the stay-at-home order lifts.
I am saying that many of those white collar workers with marginal attachment to the Bay Area will leave once they can since this time, they know they can do their jobs from the other side of a zoom conference.
The point is, however, that it is not a binary choice – San Francisco or Buttf*ck, Nebraska. HP has for several years now generally not been hiring into the Bay Area. Instead building hubs in Boise and Colorado Springs. Other tech hubs are emerging too – often in areas with attractive lifestyle and very, very affordable for mid-level techies. For service workers it will be more of a no brainer after this is over. The opportunity to relocate which some, many, talk about but have not yet done.
I agree that lower premium work has been migrating out of the Bay Area for 30 years. The highest value jobs have on aggregate remained here. While the bay area’s slice of the pie has been getting progressively smaller, the pie has been growing progressively larger.
Your assumptions are always wrong, every time you comment something. The same way you said Salesforce Tower wouldn’t be built 6 years ago.
“because every family living in a place without a private yard for their kids to play in are going to leave”
No, they won’t.
Not any recent cash buyers, at least…
@tipster: I agree with your sentiments. WRT seeking a higher quality of life elsewhere, I’ll add that I’m hearing the exact same talk from my NYC friends and business associates. They are are still employed, but they are just done with the make 1mm, spend 950k/yr lifestyle. Perhaps the Covid talking, or perhaps change is afoot.
How do you spend 950k a year?
By having no sense or respect for yourself.
“How do you spend 950k a year?”
By a combination of spending 65% if your income on rent, consuming a lot of delivered avo toast, and taking frequent trips to Machu Picchu?
Taxes only are the smallest slice of that pie!
So many of arm chair QBs on this site these days. It is almost like some of these forecasters have lived in a city like SF after a pandemic. That or they have a crystal ball.
I sense most are “talking their book” and like trash talking SF because they were priced out and now live in the burbs. FYI you are more likely to die in a car accident in your suburban hell than from CV.
Gotta love the armchair epidemiologists. So let me ask you, where are we on the curve? How many people are positive? How many immune? And once you’re sick what can they do?
Don’t discount the psychological effects — Americans these days are a snowflake bunch. The Bay Area in particular is a snowflake stronghold. Just the effect of being indoors for months will be catastrophic at all levels. Not to mention losing all your perks in a day …
But party on!
p.s. and do you mean suburban car crashes in a crash rated device OR dense urban pedestrian maiming and death?
“talking their book”
That is a succinct distillation of the job of selling real estate.
Not lived in SF after a pandemic, but lived here before,during and after both the 2000 tech bubble bust and the 2008 housing bubble bust. And yes both times rents dropped by a lot.
Oh No! Here it, comes, the two-words that have ALWAYS meant prices are about to fall, big time: “Crystal Ball”.
If you go WAY back on the comments here to 2007, you’ll see a predictable pattern with recent events. First the Socketsite editor starts pointing out apples that are falling. The Realtors and hopeful sellers (usually investors locked into leases or those who just bought and don’t have enough equity to pay the expenses of selling, trying to prop up the market long enough to allow them to bail out) ERUPT in criticisms of the dropped-in-price property, as if it didn’t have the exact same flaws the last time around. None of these same boosters ever seem to have an ounce of criticism for any property while the market it rising. But it gives them some sort of pathetic excuse they can try to latch onto as to why one property fell while the others are sure to keep rising to the moon! Then it’s more and more apples as the usual boosters furiously try to bail water out of an obviously sinking ship.
But then, they can’t keep bailing, as it’s clear that the water is coming in faster than they can try to manipulate people into believing that it isn’t, and that just happened in this thread. There’s no more logic or reason that passes the laugh test, so we get two desperate responses from the usual boosters:
1. No one has a “Crystal Ball” and
2. “No it won’t” type arguments Without any supporting explanation, namely because there is none, but they think if they repeat it often enough, others will believe it.
Both of these have now made their appearances in this thread. It’s like seeing the first bird flying south for the winter. Batten up the hatches boys, we’re in for a storm!
Isn’t that the truth! During good times realtors have no problem predicting a continued booming market. “Never been a better time to buy” is their mantra. So called ‘data driven’ realtors were confidently predicting that last years IPO’s would push average SFR prices to $5 million.
But when things turn bad all their crystal balls go dark. And now suddenly no one can forecast anything.
It’s difficult to make predictions, especially about the future.
You don’t deserve an explanation when you drop flames like “every family without a yard will flee.” I mean, really. Every last one? Come on bud. You like to push buttons on here more than you like to learn or know things, or even argue.
I noticed we didn’t hear a peep out of you on the sale of Dolores Heights View Home.
That’s because this site’s Apples to Apples tag is an awful exercise in confirmation bias. Check out this 3 year turnaround for a property in an awful part of SOMA that’s never getting better unless the city lets property owners demolish SROs. A solid $80k appreciation in 3 years without lifting a finger in improvements.
I could go on, e.g., 72 Walter
Maybe Ohlone has better things to do than brigade against an agenda.
You obviously missed the part where 6 months prior to its recent dismal apples to apples resale Ohlone called out that the Dolores Heights home wasn’t even worthy of a post because it was ‘right on its last price point’ ($4.5M in 2015) https://socketsite.com/archives/2019/10/dolores-heights-view-home-drops-below-its-2015-price.html#comment-351897 Never mind that even a 5 year flat result would represent a significant change in the market from the boom years.
And his partner-in-crime-b flat out predicted $4.625 for this home. https://socketsite.com/archives/2019/10/dolores-heights-view-home-drops-below-its-2015-price.html#comment-352097
I wasn’t talking to you. But you did see me write about that one before. What am I supposed to make of it? I was very much in that marketplace in the fall and early winter. I was told by a specific person that they had a client who really liked the property, and was going to write on it. It made me think the property would likely be sold before long. That’s it. Everything is not so “gotcha” and black and white always, OK? jeez. And sometimes a mere two groups being competitive in a given market can drive up price. That house was always what it was, sure, and it’s an apple, sure. But it’s also not emblematic of everything either.
Anyway, just double checked the back and forth language in some older emails. They did write on it, for slightly under asking, I was told. So the big hullabaloo you’re making out of this is really nothing more than the seller deciding not to sell for a price that in hindsight would have worked out better for them. This sort of thing happens all the time in SF in every single market.
Hold the phone. Nobody guessed the sale price any closer than I did. I mean my Crystal Ball was a little cloudy but will the market go down because I was slightly off, No It Won’t.
It’s not hyperbole to say SF and Oakland have long had terrible sanitation / public health issues. Random piles of garbage, human feces, used needles, you name it.
Being an optimist – I like to think this will finally force our inept city governments to pay attention to the issue. And if so, that supports the both the neighborhoods and rents going forward…
I churkled at all these 5% or 25% debate up above…
For me, it has been 100% drop in rent as I had to keep my rental vacant to comply with some rental control laws…When I come out of this mandatorily-voluntary vacancy, I’d be happy to take whatever rent…
One of many differences between this and previous crises is that the Fed has very few tools and the tools it has are the wrong ones. They can do what they are doing which is to help market liquidity.
The Fed has been a big reason why we have this deeply ingrained kneejerk -buy every dip in every asset class mentality. Post dot-com, they lowered progressively to 1% for a year. In 2008, they went to 0 for years and did $4.5T in QE. Now they can’t lower any further and can only use language about unlimited buying. In the past, significant easing did everything from forcing money into stocks, pumping up/saving housing, forcing institutions to seek yield anywhere- including VC’s where a lot of them did not have experience, saved people from rate resets on their homes etc. We’ve whittled away risk premia in all markets with the notion that the Fed is an institutionalized put on all markets- housing, stocks etc. But this is so different in many ways; it is a recession that is disrupting both the demand and supply sides, deeply internationally intertwined, and adds an element of personal fear to the psychology of various markets.
I have no background in this topic, but I don’t know why large tech firms would move away from having a more distributed workforce. The thing that might change that is if there is a dramatic fall in cost of living/rents/purchases which seems to be what we are discussing. But in general, it seems like a secular trend.
Unrelated and anecdotal, I know about fifteen under 28 y.o’s who have been laid off and already are moving back in with their parents. I get it after college, but it is surprising to me how many individuals and small businesses can’t survive a couple of months without income. That comes off as sounding insensitive and I don’t mean it that way. Part of this is in talking with friends who have small businesses and I get the level of stress going around right now. I just didn’t know that so many were living that close to not being able to pay the rent/lease. FT ran an article about the end of the belle epoque of restaurants. I sure hope that is not true, but you hear these estimates of 30 – 40%+ of restaurants closing down and big chains being a higher proportion of the ones remaining. I know if that happened, there would eventually be a sort of re-balancing with lease prices coming down enough so interesting restaurants and small businesses can take a shot again but that would take time. Hopefully this ends sooner for all the reasons, but it’s a bit hard to see right now.
And yet my WeekendFT arrived with the (usual) “How to Spend it” inside: the front section making a compelling – if not 100% accurate – case for the World Economy that we knew coming to an end, and life going on as usual in the other sections. People who understand the lead times in publishing will understand this, but there’s still a startling disconnect b/w mild talk about a “downturn, and what we seem to be seeing…a prolonged idling of a fifth (quarter? third??) of the workforce.
Comments are closed.