While the vacancy rate for larger, multi-unit apartment buildings in San Francisco had only ticked up from around 5 percent in the second quarter of last year to around 6 percent in the second quarter of 2020, that single percentage point increase represented around 1,500 newly vacated units, or around 3,000 newly vacated bedrooms, for a total of roughly 9,000 vacant units spread across the city as of the end of June.

But it wasn’t until the third quarter of this year that the vacancy rate really jumped and rents tumbled in San Francisco, as we foreshadowed back in early July.

And based on a proprietary review of all leasing activity and availability at ten of the larger apartment buildings in San Francisco, including buildings in Hayes Valley, Dogpatch, Mid-Market and Downtown, representing over 3,000 units combined, we’re seeing an average vacancy rate approaching 9 percent (which doesn’t include new buildings with even higher vacancy rates that were never fully leased, such as Related’s Hub District tower at 1550 Mission Street).

But there’s another wave of vacancies on the horizon as well.

In fact, while the current average vacancy rate is approaching 9 percent in the buildings we reviewed, there are an equal number of apartments that are set to be newly vacated over the next two months as leases, which aren’t slated to be renewed, expire.  And there is at least one big building in the city, which had been fully occupied, which is facing a vacancy rate of 20 percent by the end of November and another which is on track for a potential vacancy rate of over 30 percent by the end of the year.

We’ll keep you posted and plugged-in.

77 thoughts on “Another Wave of Vacancies Poised to Roil the Market in S.F.”
  1. “And there is at least one big building in the city, which had been fully occupied, which is facing a vacancy rate of 20 percent by the end of November and another which is on track for a potential vacancy rate of over 30 percent by the end of the year.”

    That is insanity. Even after the pandemic ends, I can’t imagine a $4,500 monthly rent ever being a reality, again. Feels a bit karmic.

    1. a friend of mine is living in 1550 mission… they are still asking this for (low) floors 1br. It’s a ghost town in there, so i’m guessing the prices will come down.

  2. “one big building … facing a vacancy rate of 20 percent by the end of November and another which is on track for… over 30 percent by the end of the year.

    I’d be much more interested, not in whether/not they’re “big” – since even the biggest will contain only a small percentage of the city’s total – but whether/not they’re representative. Not that I’m joining in the ‘cherry picking” crowd, mind you.

  3. 20% vacancy after fully-occupied? Guessing Nema.
    30% vacancy new build? Guessing Trinity.

    Does anyone even live in the Madelon? The absurdly-priced ground floor “maker spacers” (“Live here! Work here!”) are dead. The building seems haunted.

    Hundreds of “affordable” units are coming on line imminently at four developments along Mission/16th/Folsom. I don’t know how many of these are family-sized, but I think it’s safe to say that the city has enough studios and 1Brs for years and years.

    The fallout from the hubhaus implosion can be seem on zillow; the bottom end is suddenly full of owners trying to fill up “co-living” flats of 4-8 BRs.that were apparently hubhosed.

    Larger co-living modern SROs like Cubix don’t look very healthy (in more than one sense!). Who is ever going to want to live in these ridiculous micro Kubes for Kids with shared baths and kitchens? Tear ’em down and start over.

    1. Nonsense!! The micros would make great storage lockers. (And w/ all the better classes giving up their ‘pied a terre’s there’s bound to be a surge in demand for places to store furniture).

      1. You’re on the right track. You know they’re already brainstorming how to (cheaply) repurpose these stinkers. Pet hotels? Art studios? Personal yoga rooms? New city jail? The latter probably wouldn’t fly: the cubes might be too small to meet minimum humane requirements..

    2. There are many folks priced out of market-rate studios (even after a 25% fall in prices) that will fill new SROs. Lots of them live with friends, double up with other families, or in vehicles…the housing crisis is not over just because overpriced units are sitting empty right now.

      1. That’s right, the housing crisis is not over. Prices are still ridiculous, especially for those who don’t manipulate symbols for a living. Owners will do everything they can to avoid lowering rates, and some will choose to leave units empty, instead of having to renegotiate terms with existing tenants, dealing with loan resets, or suffering the indignity of a market-clearing rent. Vacancy tax beckons…

        1. Agree 100%, particularly as service and tourism sectors face huge layoffs and ongoing unemployment. I’d like to see a vacancy tax and a vacation/second/third/etc. home tax.

    3. Funny you mention it, as of this writing there are two units on sale at 766 Harrison St (Cubix Yerba Buena) and they are both asking $419,000. RedFin’s payment calculator and rental estimate says that if financed at a reasonably-available rate, the monthly payments would come out to only $102 a month above the median rent for South of Market. I expect both of them to be snapped up by foreign investors looking to park their money.

  4. How do you predict that a lease won’t be renewed? Are these apartments where the tenant has already declared their intentions, so the apartment is listed as available at a future date?

    1. If you believe the circulars filling up my snail mail box, yes. According to the realtors who want to be my buyer’s agent, former renters are taking advantage of a once-in-a-lifetime opportunity to buy homes at temporarily reduced prices combined with interest rates that are the lowest in living memory. They go on to say that if I don’t buy now, I will be sorry, as the market is hot, Hot, HOT!

      1. A realtor I know told me recently the market is not looking good for sellers. I’m quite sure you won’t be sorry if you don’t buy.

        1. I am looking to buy a multi unit building, and only willing to buy when it becomes a buyers market. When those rent free peeps get the boot i feel the prices across the board are going to drop like a rock; back to 2012 prices.

  5. I’m in 38 Dolores St and I estimate 30% to 40% vacancy – one 2 bed 1 bath unit on my floor was vacant from March thru Sept.

  6. I’m guessing there must be several thousand new rental units set to hit the market by the end of 2021. Ouch. Speaking of 1550 Mission, Hub 2.0’s thousands of stack and pack units look to be untenable now. At the time one argument for the Hub was that it would provide housing for workers in the millions of new feet of office space allowed with the Central SOMA Plan. That plan is, however, itself looking problematic (Chronicle did a piece on the crosswinds now facing that vision) as companies reduce their SF footprints or relocate altogether. Microsoft just announced permanent telework and the SF Business Times wonders if it will impact Microsoft’s SF office footprint. On top of this the potential for a major population drop -15% or so – could cause a wave of ongoing vacancies to roil SF for years to come. The Hub, HP/Lennar, Park Merced, the souther waterfront projects – all that housing may simply no longer be needed in SF.

    1. Microsoft announced they would allow work from home at 50 percent, with more only with manager approval (good luck with that).

    2. Rents in San Francisco, and in much of the Bay Area, remain far higher than in other cities around the country. For example, the Chronicle is reporting that (according to realtor.com) the median monthly rent for a one-bedroom apartment is still $2873 in San Francisco, $2598 in San Mateo County, and $2466 in Santa Clara County. By comparison, median rent for a one-bedroom in King County Washington (which includes Seattle) is only $1830 a month.

      With rents in San Francisco still more than 50% higher than in King County, and rents on the Peninsula still more than a third higher, it’s clear that the Bay Area still needs a lot more housing.

      Making it legal to build low-cost housing types on far more sites around the City and around the Bay Area would really help. For example, ending exclusionary single-family zoning (as Portland and Minneapolis have) would open up thousands of sites for duplexes, fourplexes, rowhouses, cottage courts, and small apartment buildings. Building new concrete and steel apartment towers may not pencil out for a long time. But low-rise, wood-frame buildings that don’t require elevators have substantially lower construction costs. If we make it legal again to build small multifamily buildings – from cottage courts to fourplexes – in areas around the Bay that currently have exclusionary single-family zoning, we can do a lot to bring rents and home prices down to something closer to the national average.

  7. What is different about vacancies this month that doesn’t occur normally this time of year? 12 month leases signed in October 2019 looked similar to those signed in October 2018, no?

    How have you inferred that leases aren’t ‘slated’ to be renewed?

    1. Once again, we consider a specific unit that’s currently leased but is actively being offered for rent, with a defined availability date within two months, as slated not to be renewed.

      And in terms of what’s different, there’s the vacancy rate (which is up), concessions (which have been climbing), and the projected renewal rate (which is way down). But other than that…

  8. From earlier today, San Francisco Apartment Rents Crater Up to 31%, Most in U.S.:

    The median monthly rate for a studio in the city tumbled 31% in September from a year earlier to $2,285, compared with a 0.5% decline nationally, according to data released Tuesday by Realtor.com. One-bedroom rents in San Francisco fell 24% and two-bedrooms were down 21%, to $2,873 and $3,931 a month, respectively.

    The penny-ante landlords who are overleveraged are going to have to take a haircut.

    1. Or as we first reported last month, the weighted average asking rent for an apartment in San Francisco is “down over 20 percent on a year-over-year basis and nearly 25 percent below a 2015-era peak, driven by a sharp increase in vacancy rates (which had briefly waned earlier this month but has since started ticking back up).”

      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 18 percent ($725 a month) cheaper than just seven months ago, with the average asking rent for a one-bedroom in the city having just dropped to around $2,800 a month (which is down from closer to $3,700 at peak).”

      The average rate for a studio in the city, as quoted by Realtor.com, is actually off by around 10 percent.

      And the aforementioned rents were based on vacancy rates over the past month, which brings us back to the actual analysis and topic at hand…

    2. I don’t feel in the LEAST bit sorry for those [landlords] who ‘FAKE’-EllisAct evicted sitting tenants to move in NON-EXISTENT ‘family’. They can go ‘f’ themselves!

  9. Friend of mine signed a lease in the Paramount in January 2020 and has asked them to give him a break on his rent since they have so many vacancies. They’ve said they’re happy to move him into an upper floor unit at a cheaper rent than he’s currently paying or they’re happy to let him just stop paying rent altogether but they WILL NOT adjust his current rent downward.

    1. I was previously month-to-month in a unit that I lived in for 4 years (a 2 Bedroom that had a converted living space into a 3rd room). The leasing company would not lower my rent without demanding I sign a new lease.

      After both of my roommates left for cheaper options, I left as well, as the amount they “offered” to lower was nowhere near what similar units with equal sq footage are currently asking. They basically asked me to sign a new lease and be on the hook for a 3 bedroom even as 1 bedrooms are being actively reduced to match my share of rent at my previous place. So I left.

  10. the plural of anecdote is … anecdotes! But the exodus in the Marina has been at an incredible pace and continues. Moving trucks every weekends still. You see a few people moving in but it is still vastly skewed to outflow. Hard to believe it is still going on. Friend in a 12 unit building has had turnover in nine of them since March. They re-rented most of them but can’t tell at what price. Uses an agent and they only list as if they have one unit available. Just drive around at night and look at how many places are completely dark. I realize some of them might be at second homes or people might be temporarily living elsewhere but watching the moving trucks, a lot of these places are just empty.

    Meanwhile, there are more places being put up for sale. Prob six just walking the couple of blocks around here. Two flats have a sold sign on after many months. And then only one sold quickly- maybe week and a half. But we were watching and they were showing it aggressively before listing it. I guess it cuts down on official time on the market? Other places seem to be languishing.

    The feel of the city is weird. The ratio of crazies to semi-normal people has changed significantly in the evening. I do think this could be a good thing long-term but it’s sad to see some old businesses fail and in the medium-term it seems like our problems- social, trashy streets, crime, etc will get worse with the budget shortfall. But yeah drive around at 9pm on a random weekday- so many dark houses, weird cars driving around, and unwell people.

    But tourists are back, btw. The broken glass from the constant break-ins at the Palace of Fine Arts is evident. Still not back to normal times and I’m guess a greater percentage are tourists from other places in California. But the break-ins are back.

  11. Another random thing- check airbnb every couple of weeks. Not sure why places get listed and delisted if you put it in with no dates, but there are a ton of places on airbnb in the Marina. If I were going to buy in one of these medium to large buildings, I would want to watch that over time to see how many places were being airbnb’d out. There is a place with two flats around the corner that is definitely being short-term rented but never shows up on airbnb or vrbo. Not sure how they do it. There is always some kind of chaos or stupidity there.

  12. I am sure my view is unpopular here, but I have to admit that I am actively shopping for a 3-6 unit building. I think today is a much better time to buy than 2018/2019.

    And I am NOT worried a bit about most people think about the market. When I bought in 2011, I heard the exact same thing I am hearing today. And guess what, a $350K purchase is sitting at $995K, with $3400 in monthly rent. Total of maybe 3 month vacancy since my purchase on 1/1/2012.

    The only thing that I find annoying? Everything that I saw potential in and made an offer on, there are 3-4 other offers…

    1. Right, you want us to believe you made a $350k purchase in SF? Even in 2011, that could only be a studio in a not so desirable neighborhood. A down to the studs 800 sq.ft remodel shack would have cost you over $500k.

      1. That’s incorrect. In fact, with foreclosure activity in San Francisco having peaked in 2012, there were plenty of single-family homes in the southern neighborhoods that sold for around $350K on the courthouse steps in 2011.

        But in terms of credibility, keep in mind that ST’s $350K purchase appears to have appreciated $50K over the past month (“the 2012 purchase of $350K is now $950K“) and $100K since August (“$350K purchases now at $900K“).

        1. Well, I am NOT the type of person to be very exact with my numbers… I am usually just trying to make a point.. if you have a private email, I am happy to send you the Zillow view of that property, and you can take a look and come here and tell folks whether it is $995K….

      2. I don’t believe that. My friend bought an amazing 2 bedroom 2 bath loft with a large private backyard in the Mission for 440K in late 2010

        1. Right now I’m looking for some good deals. They’re starting to appear. A lot of it has to do not so much with the virus and people leaving. A lot of it has to do with owners/sponsors/developers/contractors do not want to deal with the nightmare that is SF DBI anymore. Folks made good buys here and there. Maybe they’ve got something halfway entitled. Maybe there’s a clear path toward a very nice property. But they’re sick of the incompetence at DBI and they want out. That’s where the deals are.

    2. I agree with you and I don’t think we are alone. This comment thread is too pessimistic.

      I think what we are seeing here is an acceleration of the normal churn of folks who would have left within the next three years due to life changes, without the back fill of new folks.

      I think the market will bounce quickly. There is still robust hiring in the tech community and other professionals services. Young people don’t want to be locked up in a room in the suburbs or in a mountain cabin some place. That’s appealing for a few months, and I am sure many have fallen for that trap, but it wont last.

      Living here, folks seem just as social, if not more, than before the pandemic. Dating seems to be returning to previous levels. Public dining and entertainment may not bounce back for a while, but you sure see a lot more people hanging out in outdoor spaces.

      I seriously doubt an ambitious 20/30-something hoping to find their significant other will choose [insert southern city/rural retreat] over SF. Seems like a sure fire way to kill your career and chances of finding your mate.

      In response to “blah blah blah Austin blah blah blah,” the cost of living differential wont last long. Austin is a sprawling city, and looking at median rents and cost of living obscures the fact that if you want to avoid a long commute, you’re going to pay for it.

  13. Owners are loath to reduce rents as value of the property falls correspondingly. Some buildings may remain at 50% occupancy or less for years.

    1. You can thank rent control got that. Lower the rent and you are at a baseline of 1-2% increases per year. (I don’t think this applies to post 1979 properties)

      1. yeah rent control is one of the few things that conservative to liberal economists agree on. Even Krugman has written against it.

      2. I think that is very likely true. And if Prop 21 manages to pass this year, I have little doubt that SF will impose rent control on all units older than 15 years old. Add in the likelihood that SF would also impose vacancy control and there is little incentive to lower rents at this point in time.

        That said, should Prop 21 fail to pass, you may see a number of post-79 units repriced to reflect current demand.

    2. These new buildings are not rent controlled. The issue is that buildings are valued partly by their income stream. If you have 100 units paying a higher rent and have 10 vacancies that you need to drop the rent 20% to fill up, it is going to look to banks/investors as if the value of the entire building has taken a big hit. Because the tenants paying the higher rate may try and negotiate their rent down or simply leave and the unit will need to drop to the new lower market rent to be filled.

      That’s why it is very significant that large professionally managed buildings are dropping rent so much. They have access to professional quality data sources and analysis and if they felt this was just a small economic blip there is no way they would have cut rents so much. (Or increased the free rent concessions. Which is really a rent reduction that fools almost no one. 3 months free is a 25% drop in rent for all effective purposes)

      1. Isn’t the fact that these new buildings are not controlled the exact reason why it’s *not* very significant that they are dropping in rent? The new buildings can raise rents back up to pre-pandemic levels anytime after 12 months.

        If large *rent-controled* buildings were dropping in rent, that would be significant.

        1. Rent control complicates things. But as Maestro said, large building owners are usually very reluctant to discount rent. Because they have many similar units, dropping the rents on some effectively marks to market the whole building at a lower value. And if they feel a condition is transitory they have the financial wherewithal to endure a few months of vacancy. Vs a small time landlord that may have to accept whatever they can get because they rely on that rental income.

          Rent control obviously adds in an additional element of locking in lower rents for an indeterminate period of time. But those building also probably have tenants that are long term and paying even less then the current reduced rents. If market rents have dropped 20% from 2019, but you have many tenants already paying even less then that from long ago leases, you may even welcome turnover at these reduced market rents. And there is no issue with existing tenants paying deep sub market rents asking for rent reductions to today’s rents which while down from the peak are more then they are currently paying.

          1. That’s correct. When rack rents are reduced, versus the granting of “move-in” incentives, existing tenants tend to demand rent adjustments prior to renewing an existing lease. In addition, institutional loans often include rent-based covenants which could result in a technical default if base rents are reduced.

      2. New buildings are covered by California rent control AB 1482 if they are older than 15 years from whatever date is the current date (the buildings roll into the law when they are older than 15 years old). So a building built after 2005 isn’t covered today but will be next year. Max rent increase of 5%+CPI or 10%, whichever is lower. No eviction without just cause, though with 20-30% vacancy, that was already baked in.

  14. Just as an example, I was looking at SOMA/Mission Bay listings at the Edgewater on Berry St. They are listing 2BRs for under $3k a month. I have a quote from them from 2015 in my email for one of their 2BR units at $5200/mo. So we’re talking more than 40% drop from peak.

  15. There’s physical vacancy and economic vacancy. The later are people in the their units but not paying. I wonder if this headline number of 20% takes that into account. I would imagine it does but if it doesn’t, it’s not just the landlord but the banks that will be in trouble. Either way, it’s not good.

        1. My stat friends say you’ve got to take pandemic stats as broad indicators. Since nothing like this COVID has happened for a long time, they don’t have good models about polling data and people’s behavior. And this is reflected in the large error bars.

          All that being said, the latest census pulse survey shows 33.6% (+/-17.3%) of SF bay area households facing a likely eviction or foreclosure in the next two months.

    1. This is an excellent point. What will the exodus & vacancy numbers look like when “extend and pretend” finally ends — as it must, eventually.

    1. Many who came to SF did so to make buck and not necessarily because they saw SF to be a magical mecca. Hence, when things slow, these same people move on to greener pastures in the NW and other places. Many move for quality of life issues – especially those with children.

      Emblematic of the exodus from San Francisco is Ron Suber who is considered the “mayor” of fintech. He recently announced he is leaving SF. His firm considered Oregon and Colorado and settled on Denver. Suber said that being a San Francisco came with a high personal price tag -: $750,000 in extra costs. Suber said he and his family enjoyed their time in SF but look forward to living in a place where there are seasons. In a similar vein Snapdoc – which went public recently – is expected to double its workforce and is rumored to possibly be exiting San Francisco.

      The exodus will continue and when it does settle out SF will have a significantly smaller tech job base and population. Some real estate investors have noted on this thread they are looking to buy in SF. To each their own but, if one is going to invest in residential real estate in the Bay Area (which I wouldn’t do) it is wiser to look outside of SF proper. Rents and appreciation will be greater in the surrounding counties than in SF for a long time to come.

      1. 2000-2003 was devastating. So was 2008-2010. Long-term, the big players are betting on San Francisco. Adobe, Apple, Google, and Facebook have large presences here. They may add employees in other markets but they aren’t de-camping from the Bay Area. Tech tends to flourish where smart people gather. It will not be possible for all tech workers to telecommute from small towns. Seattle has their own water-related geographical constraints on the number of people they can accommodate. The Portland Metro office market is much smaller than the Bay Area and will likely remain a more niche destination.

        The proposal for all Bay Area office workers to be switched to a 2 or 3 day per week work from home schedule on a permanent basis is a potential game-changer in terms of traffic, pollution, and general quality of life.

        Any individual might decide that, for quality of life/cost of living reasons, they want to live elsewhere. Overall, it doesn’t make sense to bet against the long-term future of the Bay Area as a desirable place to live. This is not Detroit or Pittsburgh.

      2. Do you think Bay Area outside of SF is better than SF in spite of 20% drop in SF prices and 5% increase in Bay Area prices?
        It feels like SF is now cheaper than Bay Area premium neighborhoods per sqft. People who cannot afford SF used to live in Bay Area and now that prices have inverted won’t SF be a better investment?

        1. Question regarding the “SF in spite of 20% drop in SF prices” insertion, where did you gather that takeaway?

          1. I repeat, how are you making the case of a 20% drop in “SF prices,” versus a 5% appreciation in the rest of the Bay Area?

          2. I thought the position of this website is that the editor comes in and argues against statistical claims that are not verifiable by a trailing Case Shiller index. Huh.

  16. It’s true, SF / BA has nice weather compared to much of the rest of the country. The bay itself adds natural beauty. Air quality is not TOO bad, at least on the peninsulas and the western half of SF. The port of Oakland isn’t going anywhere, it’s the only deepwater port between Washington state & LA. Eventually COVID will pass, it may be 3 years or 5, or 10, but eventually demand for urban and near-urban habitats will mean-revert.

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