Leasing Activity Inches Up, Vacancy Rate Down, in San Francisco
February 11, 2021
We’ve been tracking the current occupancy and availability of 3,600 distinct apartments, spread across ten buildings in Hayes Valley, Dogpatch, Potrero Hill, Mid-Market, SoMa and the Transbay District, over the past four months.
Having peaked at around 11 percent near the end of last year, which was nearly twice the citywide vacancy rate for larger, multi-unit apartment buildings in San Francisco just six months prior, the average vacancy rate for those 3,600 units dropped to a littler under 8 percent last month, driven by aggressive discounting and incentives to sign a new lease by the end of the year.
And the average vacancy rate for our distinct bucket of units has since inched down to around 7.5 percent.
That being said, the vacancy rate for one of the larger buildings we’re tracking, which was fully occupied prior to the pandemic, is still over 10 percent. At least 2 percent of the units we’re tracking, which are currently occupied, are slated to be vacant by the end of the month. And while the average vacancy rate for larger buildings has inched down, listing activity has inched up across the city overall, with the average asking rent for an apartment in San Francisco having slipped back under $3,100 a month and the average asking rent for a studio, which is down nearly 35 percent from a 2015-era peak, having slipped under $1,900 a month for the first time since 2010.
We’ll keep you posted and plugged-in.
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Last week, I went to see a 5-unit that the owner is selling off market. Bought in 2015 for $2.7M, the owner is now looking to offload for $2M, due to the vacancy, as well as the reduced rent.
I expect vacancy to stay elevated for 2-3 more years, and hence tons of attractive opportunity to buy.
Did it need a soft story retrofit?
Soft story retrofit was done, and property itself in a very nice neighborhood, but the floor plan is weird. In the past, anything rents even with bad layouts, but situations have changed, as we all know, and tenants can afford to be very picky, now and for the next several years. Units with strange layouts or outdated will have a hard time to fetch a tenant, that is why I passed even with the discount. There will be many good opportunities to buy, IMO.
How do you spot these opportunities? I have not seem any such opportunity with 25+% discount over 2015 price.
In Economics there’s the concept of “the Full Employment” unemployment rate (specifically that it isn’t “zero”, tho there’s no agreement on exactly what it is). I’m guessing there’s something similar in Real Estate: the “Full occupancy” vacancy rate (?) Maybe 2-3 %, or something like that, so a movement from 2-3% to 11% isn’t really (just) a four-fold increase, but rather an infinite one (from “full” to “full+8%”).
It’s not precise (because it’s based on what we see in the wild; technically we could see a business cycle with even lower UE which would redefine the notion) but conventionally a tight labor market is 3-5% UE so getting in that range is considered full employment.
I re read it 3 times and have no idea what your talking about. Can you please clarify? Only analogy I can think of: A homeless man has nothing in his pocket and zero net worth. I hand him a $1 bill. Are you saying I gave him an infinite amount of money?
and since this article is about going from 11% to under 8% should we be thinking it has come way down from infinity?
The point is that unemployment – or in this case vacancies – can never really be zero: people will always quit their jobs/get fired/enter the labor force – or move out/get/evicted – and there will be short periods of time while they’re replaced. so if we want to use UI (or vacancy) rates as a proxy for “how bad things are”, then we acknowledge that even under the best circumstances they won’t be zero.
So if a rate went from, say 4% to 8%, the casual response would be “oh it doubled”; but actually you’d want to take out the 2% that’s transitory – so from 2% to 6%…it actually tripled. And if it went from 2.1% to 8% it didn’t (almost) quadruple, it went from .1% to 6%..so sixty-fold (!)
It’s a similar concept to what the editor was whin…talking about with “baseline numbers” on Post Office relocations: you have to take out the baseline number to see how meaningful something is.
You’re overthinking this. If you consider the occupancy rate going from 96% to 92%, there is no “infinity”. Nobody looks at it the way you are suggesting.
Probably not overthinking as much as overexplaining; the point is pretty simple: rising vacancy is probably worse than it appears, while falling is better.
“rising vacancy is probably worse than it appears, while falling is better.”
So going from 10% vacancy to 6% vacancy is much better than going from 6% to 10% is bad? That’s convenient.
I understand full employment quite well but when you extend the “concept” here it sounds like realtor math. Let me convince you that I bought a place for $2mm and the value went up to $4mm and I’m up 100%. Value went down to $1mm and I’m only down 75%. So I’m still up 25%!
I lost a Sacramento tenant recently. Young professional couple. She’s taking a job in SF and moving to an apartment on Gough.
Narrative violation!
I have a 3 bed, 2 bath, 1 office w/ parking in Western Addition that I would have been able to rent pre-COVID for $5k. I just listed it at $4300 in January, and within 5 days, closed a renter at $4500 (they offered the increase). Other candidates offered to compete, but these tenants had the best overall. They all came in from out of SF (young professionals).
Mentioned this before, but a friend of a friend was able to get 6 months “free” rent in one of the new buildings. I think the market is going to be erratic until the eviction mortarium has expired.
“leasing activity” usually refers to commercial office space. Rental Activity refers to apartment rentals. There is a big difference in the two markets. Just saying….
Leasing, not renting, is the lexicon of choice when dealing with institutional-level properties. And as that’s the focus of the piece, our choice of words was quite deliberate.
50 units in the building I live in. 5 are empty. All very nice units. Usually there are none empty.
The landlord isn’t advertising them anywhere. Only showing them to paying tenants who want to relocate in the building. Said he doesn’t want to undercut his own rents by renting for less than what current tenants are paying.
Pablito, I’m looking to move within SF. Could you share which building?
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