Having held at around $3,450 a month in January but slipped on a year-over-year basis, the weighted average asking rent for an apartment in San Francisco has since dropped to $3,400, which is 5 percent lower than at the same time last year, over 17 percent lower than prior to the pandemic and 24 percent below its 2015-era peak of nearly $4,500 a month, with the average asking rent for a one-bedroom in San Francisco having ticked down to around $2,900 per month (which is 3 percent lower than at the same time last year, 17 percent lower than prior to the pandemic and nearly 22 percent below peak), all despite ongoing misreports of a “market rebound.”

At the same time, the number of apartments listed for rent in San Francisco ticked back up around 5 percent over the past month and is over 5 percent higher than prior to the pandemic, with local employment having dropped last year and trending down, facts that aren’t “bearish” or “pessimistic” in nature but key to understanding and acting on the actual market trends, none of which should catch any plugged-in readers, other than the most obstinate, by surprise.

Keep in mind that our analysis of the rental market in San Francisco is based on over 190,000 data points going back to 2004 that we maintain, normalize and index on a monthly basis versus relying on a few years of data or “recollections.” We’ll keep you posted and plugged-in.

24 thoughts on “Asking Rents in San Francisco Drop, Nearly 25 Percent Below Peak”
  1. I don’t doubt the accuracy of these figures, but it remains difficult and competitive to actually find a good apartment in a desirable neighborhood. It would be great to see a neighborhood-by-neighborhood breakdown if available.

  2. A chart overlaying housing units produced per year in SF with average price for a one bedroom in SF during that year would be wonderful, especially for those of us who believe in supply and demand and can use it in conversations to convince those who think otherwise. I’ve seen it elsewhere but not maintained and updated annually. What we would see from my recollection is that as soon as SF started producing ~4K units per year consistently, around 2016, prices dropped consistently, even before the pandemic fall out. Ongoing deliveries of units throughout COVID continue to press prices down.

  3. San Francisco is a less attractive place to live now compared to pre-covid, with wider WFH acceptance, more limited city offerings (restaurants, service businesses) and increased street life/safety/hygiene problems. Rents should come down.

  4. So investors who purchased SF apartment buildings in years running up to pandemic lockdown as market was peaking, believing 4% CAP would only get better with time, they could be very likely looking at negative cash flow investment.

    1. This is particularly true given today’s higher insurance and utility costs.

      1. SF has process to allow landlords to pass through increases in operating costs like utilities and insurance to already existing tenants, right? However, the cost to renovate a vacant unit is increasing due to inflation, while at the same time the potential future rent of that unit is decreasing. So landlords will become reluctant to renovate vacant units, and buildings will go into decline and lose value? Not to mention other SF landlord headaches, rent control, vacancy tax, difficulty recovering loses from moratorium on eviction during pandemic lockdown, cant remove homeless junkies from camping on sidewalk in front of building, etc.

        1. Interesting that you bring up renovation as a concern after highlighting the plight of Veritas and their rent-controlled apartment buildings. Frequent renovation was Veritas’s underlying strategy for growth for quite a while. They’d acquire rent-controlled buildings using lots of leverage, target rent-controlled tenants paying less than market rate and effectively force them to move out by gratuitous and/or continuous renovation of rent-controlled units, and then when the units were vacant, hike up the rent, which essentially created a market-rate building out of a building acquired at a price reflecting rent-controlled income streams.

          Plugged-in readers of this site will know this already, but The Chronicle’s Feb 27th article entitled S.F. mega-landlord Veritas is selling off 762 rent-controlled apartments brings some necessary context to the conversation, in the tenth ‘graph:

          Veritas, headed by CEO and founder Yat Pang-Au, entered the San Francisco market after it acquired some 2,000 units that were previously owned by the Lembi family — once San Francisco’s largest and one of its most notorious landlords — but fell into default in 2011.

          Following the 2008 housing collapse, demand for rental housing was strong, and so was rent growth. Veritas managed to scale up quickly in the city, albeit amid heavy criticism from tenants, who accused the company of acquiring rent-controlled properties and then displacing long-term renters in favor of market-rate tenants.

          Veritas affiliates owned around 6,500 apartments across 293 buildings in the city as of 2022. At the time, the company’s real estate was valued at $3 billion. The company continued to grow its holdings even as the economy began to shift in the wake of the pandemic. It shelled out $43 million for an 87-unit apartment building in Nob Hill in 2021 and $33 million for a 42-unit building in Russian Hill the following year.

          As is so often the case, the use of too much leverage seems to be the culprit. Demand destruction doesn’t help, either, but someone else who is better capitalized will come along and acquire these — just like Yat Pang-Au did — after the price of these properties returns to a level in conformance with current interest rates.

          1. I don’t work for veritas, they can speak for themselves. If the City of SF said units or buildings were were required to be renovated to be brought up to code, then landlords must do that to remain in compliance with the City. Landlords can’t not do the work. While there is legal process for landlord to pass through cost of renovations and upgrades, within the SF rent control regulations. Landlords give tenants the advance written notice of work to be performed, have right to enter units in necessary.

          2. It seems like your point is that Veritas did a bad thing by renovating the buildings the company owned.

            How should buildings be kept in good work order, if not by periodic renovation?

            Are we supposed to dislike landlords because they don’t spend money taking care of buildings or because they do spend money taking care of buildings?

          3. No, what you and ‘Fact’ are doing is trying the rhetorical gambit of portraying Veritas as some pseudo charitable organization fixing up old buildings that needed renovation when no one else would. That isn’t what was going on. What was actually happening is that the renovations were a cynical tactic to get long-term leaseholders to flee constant construction in their buildings, so Veritas could increase turnover and raise the rent when units became vacant, and even raise the rent via a pass-along of capital expenditures when tenants didn’t. See my third sentence above (or the aforementioned Chronicle article).

            Yat Pang-Au and Veritas had access to enough capital that they could have, and should have, purchased market-rate buildings, but instead they had a business model of buying buildings subject to rent control and using gratuitous renovations as a regulatory arbitrage method to get those properties to generate an income stream above what rent control would allow. They aren’t deserving of any sympathy and we should all be glad their once vast real estate empire is shrinking.

    2. The music from The World’s Tiniest Violin has begun playing. Won’t someone please think of the landlords?.

          1. City of SF with its pulbic housing projects already is the largest landlord in the city, and has the greatest number of unresolved code violations. Its almost impossible to fire city employees regardless of performance, or decline of properties. So called tenant’s rights advocates never make issue about it, because there isn’t private sector landlord with deep pockets they can make claims against.

    3. Sure, those investors will likely lose money, just like the people who bought condos, and houses at the same time.

      Typically San Francisco apartments sell at a cap rate that is a 100-150 basis point discount to borrowing costs. (e.g .3.5% cap rate vs 4.5% borrowing cost). Add in property taxes and running costs and you arrive at the conclusion that apartment buildings have been transacted at prices where the buyer assumes appreciation of the asset, not as a ‘positive cash flow’ as you imply.

      1. Absolutely right. San Francisco apartments have not made sense as a pure investment in decades unless you are counting on appreciation. It has been a boutique market where people pay far more than properties are worth based on the income they generate. Maybe that’s changing, or maybe this is just a bump in the road. Ask me in five years.

        Put another way, if you took an SF apartment building, picked it up and plopped it down in almost any other city in the country — assume it continued to bring in exactly the same rents and its P&L did not change — it would be worth 20-40% less than it was worth here. People and companies bought SF apartments for appreciation, or because they wanted to own a trophy property, or because they thought they could push rent-controlled tenants out and increase the income. The only exception to any of this would be small owner-occupied apartment buildings where it might make sense to buy overpriced apartments because you wanted to live in one of them and have the other tenants help pay your mortgage.

        I have more than 30 years of apartment investment experience and I would never buy an SF apartment building as an investment, because I’m not unethical (not going to intentionally push tenants out to raise the rent) and because the numbers just don’t work. Anywhere else, apartment investors want a property to cash flow. That just doesn’t happen here and hasn’t in decades if ever.

      2. So with current multifamily borrowing costs in the range of 6 – 6.5 percent, Californio’s rule of thumb would indicate that the expected cap rate would be between 5 and 5.5 percent, is that right?

        Consider 154-164 8th St., with 12 residential units as well as some commercial space, asking $3.995 million as a potential SOMA market indicator.

        The listing agent’s copy reads “Pro-forma estimations have the building operating at…a 6% CAP RATE”. But as it stands, four of the residential units were vacant (“affords the new owner the opportunity to immediately increase the propertys [sic] cashflow”, says the listing) when the copy was published. It’s not clear if those pro-forma estimations relied upon increasing the current rent levels for the vacant units to get to that cap rate. Or what the impact would be on the realized cap rate if the new owner had to lower rents from previous levels in order to get the units leased. There’s obviously more calculations to do than just comparing an estimated mortgage payment of $24,449 per month to the gross income from 12 units at $3,400 per month.

        1. In short, we’ve never seen a “pro-forma” cap rate that wasn’t based on “potential market rents” and occupancy rates, which tend to be optimistic, to say the least.

  5. I’m curious what 2 and, particularly 3 bedroom prices are doing? 1 bedroom and studio are always going to be the most volatile, whereas 2 and especially 3 bedroom, although they are often roommate situations, include families and seasoned professionals looking for more space. Looking around 3bd are running $4800-$6000 but it’s hard to say what the average ask price is because so few are on the market

    1. The average asking price for a two/three bedroom apartment in San Francisco is currently down around 4 percent year-over-year, 14 percent below pre-pandemic levels and 24 percent below peak.

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