Rents in San Francisco Drop Even More, But…September 18, 2020
Having slipped to just under $3,600 last month, the weighted average asking rent for an apartment in San Francisco has since dropped another 5 percent to $3,425, which is now down 20 percent on a year-over-year basis and 23 percent below a 2015-era peak, driven by a sharp increase in vacancy rates.
As such, the average asking rent for an average apartment in the city, which measures 2.4 bedrooms when counting a studio as having one, is now 16 percent ($675) cheaper than just seven months ago with the average asking rent for a one-bedroom in the city having just dropped to under $2,900 a month (which is down from closer to $3,700 at peak).
At the same time, offers of complimentary rent and cash concessions still haven’t waned, driving effective rents down even more.
And rents in Oakland are now dropping as well, with the average asking rent for a one-bedroom in Oakland having just dropped to under $2,200 a month (versus closer to $2,500 at peak).
All that being said, we’ve seen a pull-back in listing activity for apartments in San Francisco over the past week, a pull-back which could help moderate the rate of decline in local rents – which has been averaging around 3.5 percent per month – if it holds. But if the local labor force continues to drop…
We’ll keep you posted and plugged-in.
Comments from Plugged-In Readers
So riddle me this RentMan: If Oakland is really the last to rise and the first to fall why has the decline in SF (23%) exceeded Oakland (12%)?
(Bonus points for considering the relative mix of stock and the effect of new inventory – as long as you show your work – but this is really more of an essay question about how accurate [that] economic theory is – or isn’t – than a math exercise.)
I see a lot of middle class people moving out of Oakland to cheaper areas in the state.
But I see even more middle class people moving into Oakland from SF. $2,200 (Oak) a month is still a lot cheaper than $2,900 (SF) a month. Supporting Oakland asking rents.
The poor in Oakland can’t afford to either pay their rent or move – so the bottom of that market isn’t going to move $.
Density, smaller units, covid. Easier and cheaper to get your own place in oakland and live on your own.
What economic theory in particular do you believe is being disproved? Granted it’s been a while since grad school but I can’t think of any. Perhaps you should gain a better understanding of the material before you assign a test.
I’m guessing my Grad School experience is older than yours…from a prior century (just as much metaphorically as literally); but back to your question, the theory was the one stated: that SF is a Golden city, immune to downturns (or at least more immune than other areas).
As for ‘doubist”s curious claim (below) that because SF real estate starts higher, it follows that it should have higher RELATIVE movements, would seem to be the working definition of a bubble.
#Statistical analysis is complicated, most people asking questions aren’t so much?
SF real estate starts higher. That means bigger swings going up and going down as an average.
That’s literally just math. (There’s demographic stuff but that’s much, much, much more complicated too.)
The New York Times did a detailed study of post COVID migration out of NYC and found that migration was predominantly out of richer areas. People who wanted to move out vs people who needed to move out. Anecdotally I think it is the same thing here. Between the stimulus and the eviction ban, we haven’t seen the need to move out component yet. Just the want to move out, and that has happened more from richer areas. This is in contrast to a normal economic downturn where the low end gets hit first.
Still too expensive.
Stripe just announced that its workers who choose to permanently telework will face a 10% pay cut but get 20K towards moving expenses. Now that’s a deal. Other companies are expected to follow suit. Bit of a surprise that the pay cut is so small but maybe not. In this new environment talented techies likely will be able to command salaries close to what they would make in the Bay Area. Permanent telework with competitive salaries could become the new perk in tech and other industries.
A 10% pay cut? Love pinots? Thinking of moving to the to the magnificent Willamette Valley wine country? Corvallis’s cost of living is 58% less than SF’s. Maybe pinots aren’t your thing but skiing and the 4 seasons are. Look to South Lake Tahoe – which many techies are already doing – and the cost of living is 50% less. Don’t like the snow? How about the warm sun-drenched beaches near San Diego – it’s cost of living is 39% less than SF’s. SF’s tech job base could take a big hit and rents as well as home and condo prices will see further declines. In terms of how and where Americans work this may be a transformational event.
It is a 10% paycut, but it is also putting yourself “out of sight, out of mind” when it comes to career advancement, it is also permanently having to prove that you are actually working during work hours….
If Stripe didn’t think a meaningful number of employees were going to relocate they wouldn’t have formalized and announced their plan.
““out of sight, out of mind” when it comes to career advancement”
Unless your manager is also not in the Bay Area. And their manager… These companies are targeting high percent remote/satellite office. Much/Most of these companies are not going to be in the Bay Area.
Of course, if you’re a penny ante landlord, flipper, real estate agent or other hangers-on in the real estate “game” looking for continued growth in opportunities to make money, before you depart with your winnings to Texas or Florida, you’d want people to believe that relocating would stunt their career advancement.
That way, you’d still have a steady flow of people to take advantage of, jostling for overpriced local real estate and you wouldn’t have to take a hit to your own net worth as properties are marked (down) to the new equilibrium prices as they would if people weren’t scared of impairing their career advancement and relocated to one of the new “Zoom towns”.
Agreed. The career advancement argument is a canard. Espeically so as remote work becomes more and more a significant part of the tech industry. As a researcher from the Wharton school is predicting tech hubs will emerge on the West Coast. Smaller than the SV but significant employment centers. Companies can vacate their extremely expensive SF office space (think Pinterest and Twitter) for small, regional offices. Less space needed and space that is much cheaper than in the BA.
Well, FANG still has their HQ here in spades. So it’s clear where the leadership will be.
A 10% paycut, of which 30% was taxed federally, so it’s a net 7% pay cut. Then you get a 6% state tax cut on the remaining 90% (if you move to Texas, Nevada or Florida, to name a few), or a net 5% state tax cut. So it works out to a 2% pay cut, not a 10% pay cut. The rest is saved in taxes.
And that 2% pay cut is pretty easy to make up for in cost of living. So net, it’s a gain to the employee.
As for out of sight and out of mind, I’ve had remote employees, but we agreed on performance metrics, and when they met them, they got raises and promotions, when they didn’t they didn’t. In one case, I had an in-office employee who I later rehired remotely. She did better remotely than she ever did in my office. And I had far more contact with her when she was remote than I ever did when she was two doors down from me in an office.
So this is all just wishful thinking by self-interested parties. Remember: no one will buy books online, they need to feel and touch them. Bookstores are forever. What’s happening here is that the world is changing before our very eyes, and you either get on board now or you’re going to lose a lot of money.
How is the broadband speed? Or do I need to get Starlink?
Corvallis might have a 58% cut in cost of living, but the quality of life is probably around the same. Imagine being in Corvallis (58K population) as an Educated 25 year old. No one wants to be there. Nothing is happening compared to SF, LA, Portland.
Young families will move yes but life will go on
Miami, Las Vegas, Dallas, Austin, all with zero taxes and lower cost of living. And in other places, there’s skiing, camping, hunting, fishing, hiking, water skiing. With the money you save on real estate, you can have killer vacations and buy a ski boat. Do you need to live in a city to play video games? Young people get together on social media and dating apps, there’s no need for bars for that any more.
The median age in Dallas is 31, the median age in San Francisco is 38, which is higher than the national average. You can go almost anywhere and find a lower median age than here.
And the median age in your example, Corvalis, is 27, and there is a higher percentage of non married people there too.
And young people are losing interest in filthy, dirty, smelly, dangerous crowded, expensive cities: a higher percentage of people 15-29 live outside of Denver than inside.
It’s as if many here have not been to places like Boise or Eugene or Flagstaff. The “vibe” in many of these places is more positive than in SF. People are refusing to see the transformation which is underway. It started prior to Covid but has been given impetus by Covid. In terms of office space under construction apparently neither the Claw tower nor the Natoma “megaproject” have any signed leases. 88 Bluxome may not be built now. The Central SOMA plan for millions of feet of office space is not going to happen in this new paradigm. The situation in SF in terms of quality of life will deteriorate if tax revenues and fees fall as they are doing. The Bluxome project was going to fund BMR housing and provide a new park. As were projects along the southern waterfront and at Candlestick. How SF PTB handle the situation is critical but so far the response seems to be the need for more revenue – hence up fees and taxes. That default position will no longer work.
Imagine escaping the hell of SF for Eugene, Oregon, the epicenter of American homelessness. If you don’t like stepping over [feces] on the sidewalks of SF, you’re going to *hate* Eugene.
Why don’t you move then? Seriously, I don’t understand why someone who hates it here so much would remain in San Francisco.
Corvallis is an armpit of a city. 9 months of rain and no vibe. Have fun!
I wouldn’t call Corvallis an armpit. I’m quite fond of the city. But right about the weather. Cold, wet, and dreary from October to April. The locals adapt. It is common to see people gardening and jogging in the drizzle.
It is really hard to top California Coastal weather.
Bend is where it’s at. Good weather, skiing, mtn biking and good airport 20 minutes away to fly direct in any major city. It’s Tahoe but with better community and amenities.
Bend is an “in” city for millennials. Better than Tahoe as it’s not so much a tourist town.
Dave is wrong; not all major players are going to allow permanent WFH. In fact, the big players are back pedaling from prematurely announcing it based on 2-3 months of experience.
The permanent WFH culture is killing everyone, and grinding productivity severely. Speaking as someone who is saturated in the tech scene at a higher level: Nobody is going to permanently work from the office in the future. All the big companies, Google, Apple, Netflix etc. all want their employees back in the office ASAP.
That’s not what I’m hearing. I’m willing to wager that any of the big companies you mention will not be requiring/forcing most employees back in the office for at least (if not permanently) 2 years. They will quickly drain their talent pool to companies that allow WFH. The WFH trend was already taking shape, Covid just advanced this trend 5-10 years.
I doubt it. Not in “tech” per se, but a lawyer at a law firm in the middle of Palo Alto whose clients are tech companies. Everyone I know is miserable working from home and can’t wait to get back into the office at least part time. My firm announced that there will be no default permanent WFH option absent special circumstances/permission.
Sure. I’m also a local professional at a busy company and my staff is 50/50 with wanting to WFH full time. And about 80/20 wanting to WFH least half time. I for one am planning to do 50/50 WFH forever if I can get away with it. We all have our opinions and anecdotes, but common sense tells me that some amount of WFH is desirable for everyone involved.
Reed Hastings on record (namelink) saying there’s no upside to WFH and joked that people will be back in the office 12 hours after there’s a vaccine (then says 6 months after is more realistic).
Yeah, all these postings talking about how people like WFH are irrelevant. The decision makers can see that WFH is both less consistent and less productive overall, for nearly all employees.
If you want to leave Silicon Valley for quality of life reasons, you’re not wrong and you won’t be the first. There are many ambitious people who would be happy to have your office and the networking opportunities it offers.
lake tahoe real estate is flying off the shelf. ive been pseudo looking (in North Lake) and it seems every listing is gone is <15 days and at 100K over. Apparently the locals are quite upset. Most 3bdr, 2ba near truckee are now over $850K
I think it’s more than a 10% paycut….
Where do these rent numbers come from? Nice to see the updated stats, but would also be nice to be able to check the original source of the data.
We maintain a database of apartment listing data, pulled from various sources going back to 2004, which we normalize and index on a monthly basis.
And the trends analysis above was based on roughly 30,000 data points over the past year alone.
Long term SF bull here, and also native who has lived through the tech bubble burst and the Great Recession, capitalizing on real estate investment during the latter. I work for one of the big tech employers here, one that pioneers a lot of progressive ideas that become reality for other tech employers.
1) We are relaxing our WFH culture into the future, but only for certain roles. To support and augment the other commenters, if you are an individual contributor with solid productivity, more power to you to work wherever you want. But if you are a leader or influencer in any capacity (internally or externally with customers), and want your career to grow, absolutely they typically want you to be local (for big internal meetings, analyst events, etc.). Not a hard and fast rule, but certainly the default policy.
2) It’s going to be awesome to have emerging tech hubs, especially if something happens near Tahoe and places like San Diego, where I’ve been secretly hoping a tech scene emerges. ServiceNow was founded there, but moved their HQ to Bay Area to get more executive talent. They maintained their development presence in the San Diego (La Jolla) area (easy to recruit engineers from UCSD), but all their leadership is in the Bay Area. This is the model I see happening for more and more companies in the future. It works well, as demonstrated by their booming business.
3) WFH culture is now showing that there are significant productivity and morale hits over an extended period of time (in this case, several months in). It’s so bad that leaders are looking into and implementing policies that force some sort of time off to decompress. There also is a brewing sense that when companies do bring people back to the office safely, there will be a competitive advantage that will take the forms of speed of thought, collaborating toward clear executables, recruiting talent that wants the social space, and a sense of belonging, which is unquantifiable.
I’m going to take advantage of these next couple of years, just like a fellow commenter posted the other day.
Good analysis. (3) is very believable based on what I’ve seen, thanks for pointing out the pattern. People who are taking that morale hit right now need to understand that it’s not just them.
Also people seem to believe tech is the only industry in the SF and Bay Area now. Before this tech explosion in the past 10 years we had a solid biotech sector in Mission Bay as it was building out, but biotech has been pushed out of SF further down the peninsula as well funded tech companies leased space in China Basin and Mission Bay. If commercial rents in Mission Bay continue to drop as tech companies go remote and downsize their footprint, it might start making sense financially for biotechs to set up in SF again, and these are still well paying jobs that cannot be done remotely.
Good point. It’s not like with bio-tech you can permanently telework from your basement laboratory in Washougal. These jobs need to be near major medical institutes and UCSF is at the top of that list. SF leaders should be gaming this out and looking for ways to partially offset the loss of tech jobs. Stripe’s fairly new building will be empty soon. Can it be converted for bio-tech use? Can other buildings? Presumably one needs special features in a bio-tech research building but conversion has to be less costly than building new – SSF has millions of feet of office space approved around Coyote Pointe. Not to mention the planned 9 million foot project in Brisbane.
Beyond that, there are 6 million feet of sublease office space available in SF and growing. And between the Claw and Natoma buildings (under construction) almost another 2 million feet. Can some of these emptying office buildings be converted to residential use? And partially set up for BMR units given that new office construction is likely to come to a halt in SF for a long time. New construction that would have funded needed BMR units.
im a biotechie. SF was never a hub. South San Francisco has been a hub for 30 years. SF tried to lure companies to mission bay, but few ever did as it was never cost-effective compared to SSF. there are still a few in SF, but its not just the cost of space keeping companies in SSF. the tax rate is much better and SF taxes are poised to jump due to ill-advised ballot measures. also much of the workforce is older and lives on the peninsula. and not many people want to deal with the homeless situation. Unless there is a Massive drop in rent in mission bay, i doubt many will be lured. AS for remote work, there are quite a few roles that can be done remote and have been for years. there are many administrative/managerial/consulting roles that do not involved lab work. <25% of employees work in the lab at most biotechs. i do think the pandemic will increase remote biotech work, but certainly not to the extent of tech.
Sadly you are right about the ill-informed efforts to increase taxes in SF. The PTB simply don’t get it. The supervisor who represents the district into which Pinterest was going to expand said the tax increases won’t have an effect on business in SF. Please! The City is about to see a big population drop (15% or more) and an even larger drop in tech jobs located here. There is even talk of a vacancy tax on landlords whose business properties are empty – though I doubt SF is so anal as to institute one. BTW, is SSF still the bio-tech capitol? I’d read that Boston was on the cusp of supplanting it.
It doesn’t matter whether SSF or SF, in terms of real estate.
I wonder if anything other than WFH culture could be contributing to a decrease in morale and productivity in 2020…
Also someone saturated in the tech scene at a higher level here, and 100% agree with Techguy on his opinion.
The thing I don’t get about all of the ‘Welcome to the new world of work-from-home’ and ‘SF is so over’ rhetoric is: isn’t this just outsourcing by another name? There are functions that can be done in as easily in Hyderabad as in Mountain View.
As the GP pointed out, doesn’t this rhetoric miss why regional specialization occurred? Namely, that concentration of specialized entities and people give, to use Anna Saxenian’s term, “regional advantage”?
And, no, that’s not to say that industries don’t mature and spread out — they do. But I doubt that the concentration of engineering firms and research institutions, and the value proximity produces for them, ended with the SARS-CoV-2 pandemic. As Michael Storper and Richard Walker have pointed out, regional hyper-specialization is a feature of late capitalist mega-regions.
‘Welcome to the new world of work-from-home” […] isn’t this just outsourcing by another name? ”
Not another name for outsourcing, but another option to achieve the same effect.
There has already been a very large hit to the economy due to COVID and once the stimulus runs out the economic pain will become even more severe.
Corporate America has always responded to hits like this one by layoffs, outsourcing, offshoring even though all those options also take a toll on morale and productivity. Why? Because during a downturn achieving peak productivity is not the top priority, expense control is the top priority.
No doubt that many jobs will be kept close to HQs, but for those that are not the interest in WFH is that it provides cost savings while retaining many advantages over outsourcing/offshoring. Previous offshoring waves showed that while headcount in Hyderabad might be a fraction of the cost, productivity was greatly reduced, there were huge issues with IP leakage and communication issues, cultural and legal norms. WFH involves the same people and teams who were already productive, clearly subject to US laws and norms. Cost savings are not the same as offshoring, but still significant when you consider how expensive SF&The Valley have become.
Realistically most companies have been operating near 100% remote for a while now and the digital world is still functioning. Apple even announced a slate of new products this week showing that new development, not just maintaining ongoing operations is happening. (And Apple is probably one of the least WFH friendly companies in the Valley both pre-COVID and likely post-COVID) Tech stock prices are doing fine while the work force is near completely remote. Many jobs will likely return to HQ, but during a downturn when cost cutting is the main focus there will also be many jobs where any potential productivity increase won’t justify the salary and other costs of bringing those jobs back to the valley when productivity has proven to be sufficient when remote.
Uh, my prior post was meant as a reply to ‘Steven H Superman’.
For obsessive posters on a San Francisco real estate blog, people seem to be really excited by the prospect of San Francisco becoming a relatively worse place to live. Do you think a loss in the tax base is going to fix the city’s pension and homeless problem? I don’t think the meth heads would be safely housed even if studios were $1k/mo.
No, a reduction in the tax base due to even a small exodus from The City will not be helpful for the homeless and homeless addict problems, I agree.
However, the relentless gentrification, which prods home prices upwards and out of reach of people already living in S.F., which then attracts investors from all over the world here to exploit the smaller number of people with jobs that can pay the elevated costs of living, which produces as a side-effect even more homelessness, wasn’t “fixing” matters either.
But if the costs of living here increase at a slower rate, what that will do is make S.F. a more affordable place to live for the people already here who are working and productive and not addicted to crystal methamphetamine.
Those crying about how the homeless will suffer due to a lower tax base are crying crocodile tears.
The city budget has been bloated building infrastructure for half-empty office towers and boondoggle transit centers that have boosted real estate values and rents for the banker/builder/landlord/realtor class With a scaled-back city budget that tempers the tower and luxury condo building frenzy that has made this the most expensive city in the western hemisphere, the city won’t miss the techtax. Putting the brakes on towers and luxury lofts will slow down the skyrocketing inequality that has crushed the city’s working class and that is a main cause of homelessness to begin with.
Looking at anecdotes of jobs that wont go remote and anecdotes of people who don’t want to go remote misses the point. When a company such as Facebook is targeting 50% remote, then of course 50% of jobs won’t be remote. Even that company that plans 85% remote will havre 15% non-remote. If a survey says that 40% of workers would want to be remote full time, then 60% of workers don’t want to be remote.
Unless you are attacking a straw man of 100% of companies going 100% remote, then anecdotes of the status quo have little value. Real estate is set at the margin and what is going to matter to the market is the marginal change of the jobs and people who do go remote. It really looks like there will be a substantial enough shift to remote work to move the local real estate market.
A few days ago when Brahma posted about people moving out of shared apartments due to SIP/WFH it reminded me that early on in the pandemic I heard from several people who were absolutely sure that rents would skyrocket because of exactly that. They predicted that people who were sharing spaces primary as a “crash pad” to sleep in with most of their time spent at the office or in bars/clubs/restaurants would be unable to sustain this during the SIP and would be forced to all get separate apartments. This additional demand for space would send rents soaring. In the micro sense they were absolutely correct. Living situations that worked as mainly a place to sleep became absolutely untenable during the SIP and even after that with WFH. But as we have seen, rents have dropped significantly. In the macro, people outright leaving the city have overshadowed people who stayed here and consumed more space.
I think we are going to see the same thing longer term with remote work and satellite offices. . Of course not everyone is going to leave the region, and some who stay may up-size to get more space (a “zoom room” seems to be all the rage these days). But the drop in RE demand from jobs and people who go remote will overshadow any increase in RE demand by people who stay..
I’ve talked to people who work in non-tech industries such as law and insurance. In those areas, some insurance companies are moving toward a large segment being remote (adjusters) to reduce office costs. They will be reviewing the people once every 6 months to see if the work level is maintained.
Law firms have also organized some of their areas around WFH. Lawyers and support staff can do a lot of things remotely. This is for both large and mid-sized firms.
Several tech people I know have been told that they will not be going back until the end of 2021 at the earliest. They are enjoying their time at home because they have formed social groups that get together. Companies, I believe, are realizing the savings from reducing office space, and that workers can fulfill their duties from home. People who don’t like it are the ones who only have social interaction at work.
A lot of people, especially those who are fine with their current positions, don’t mind WFH. Regardless, the office footprint in SF will be reduced whether it is 10% or 50%. This will have a significant impact on the City budget and the downtown area. Many of the downtown businesses that relied on office workers (restaurants) will shut down unless their is a big correction in rent and taxes. Many have already shut down and they won’t be coming back.
Yep, this. Given that pricing is often made on the margin I think (many of) the people on here are underestimating the effect that a decline of “only” 5-10%” might have. And that amount is about one-half of Oakland…so the impact doesn’t stop at the city limits.
“think (many of) the people on here are underestimating the effect that a decline of “only” 5-10%” might have.”
Exactly. Creating a straw-man of 100% of companies going 100% remote and attacking that straw-man is pointless. The reality is that even a small relocation of highly paid jobs/workers will have a large effect on the market.
A few days ago I called out Apple as one of the least remote friendly companies. And sure enough Tim Cook had an interview last night where he expressed a desire to bring employees back. But he also dropped that some things are working so well remotely that things will not go back to the way things were.
“In all candor, it’s not like being together physically. And so I can’t wait for everybody to be able to come back into the office. I don’t believe that we’ll return to the way we were, because we found that there are some things that actually work really well virtually.”
When even Apple is not going back to the way things were this should be a wake up call for people about the changes coming to the market. Apple has no cash/profit concerns, a large hardware component and obsessive focus on secrecy and control of their technology. Most other companies don’t have all these factors in play.
Tim Cook goes on to state that Apple has been running 85-90% remote. Management/Investors of companies who are facing revenue and/or profit pressure are going to look at that and think about why they need pay full Bay Area costs and salaries if it has proven out that you can not only keep up operations but intro new products running nearly complete remote. I’m not saying that all of tech is going to go to 85% remote, but if people think we are going back to 100% on site they are missing the very large writing on the wall.
There’s a bunch of hand-wavy stuff intended to assure investors that Apple wasn’t being crippled by WFH. You didn’t quote the part where Cook expects the majority of people to return to work at the campus next year.
There are plenty of people who actually work at high levels of tech here. The writing on the wall doesn’t say what you think it says.
In fact I led by pointing out that Tim Cook expressed a desire to bring employees back. And two days ago I also highlighted that Apple was unlikely to embrace mostly remote work even post-COVID:
“(And Apple is probably one of the least WFH friendly companies in the Valley both pre-COVID and likely post-COVID)”
And you are mis-paraphrasing his quote:
“And so I think the vast majority of us can’t wait until we can be back in the office again. You know, hopefully that occurs sometime next year, who knows exactly what the date may be.”
“hopefully that occurs sometime next year, who knows exactly what the date may be” is not equivalent to “expects”
Good point, he said the “vast majority” not “the majority” would be returning to the office.
“All that being said, we’ve seen a pull-back in listing activity for apartments in San Francisco over the past week, a pull-back which could help moderate the rate of decline in local rents”
Landlords willing to let a property sit vacant rather than reduce the rent. Landlords gonna landlord
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