The Reis Reports 1st Quarter 2013 Update Regarding the SF Metro Area Apartment Building Market
Provided by the Paragon Commercial Brokerage
Except as specifically noted (on those charts pertaining to Alameda and Contra Costa counties),
these analyses apply to the market area comprised of San Francisco, San Mateo and Marin counties.
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SAN FRANCISCO METRO AREA FINANCIALS
As the market has grown stronger, cap rates have continued to fall (and gross rent multiples to rise): in the first quarter, the median cap rate was 4.9%. The city of San Francisco itself has always been known for cap rates significantly lower than most other markets. There are a variety of economic factors at work here: high demand and low supply, the relatively small average size of apartment properties, the prevalence of high pride-of-ownership boutique buildings, rent control and upside potential and other factors. It’s not a market for everyone, but has generally worked out very well financially for savvy, local, typically longer-term investors.
SF METRO AREA DEMOGRAPHIC PROJECTIONS
OAKLAND METRO AREA (ALAMEDA/CONTRA COSTA) FINANCIALS
SF METRO AREA: UNITS & RENTS
SF METRO AREA PROJECTIONS
FOR GROWTH, ABSORPTION & VACANCY
There are over 40,000 residential units planned or under construction in San Francisco, including the huge Hunters Point and Treasure Island projects, though many of these may not be built for 10 years or more (or indeed, never built). Right now, the majority of units are designated as rental apartments, though many may end up as condos and townhouses for sale once they come on line.
Looking at the next 5 years, vacancy rates are expected to remain at historically low levels as demand/absorption keeps up with new supply.
SF METRO AREA SUBMARKET BREAKDOWN
EAST BAY SUBMARKET BREAKDOWN
SELECTED SUBMARKET SNAPSHOTS
In the 9,787-unit Russian Hill/Embarcadero
submarket, the vacancy
rate is 2.5%, and the average asking rent is $2,781 per month, the
highest in the West Bay area according to Reis.
For the 12,778-unit Haight Ashbury/Western Addition
Reis reports a vacancy rate of 3.4% and an average asking rent of
$2,159 per month. Reis predicts 772 units will be added here from 2013 to 2017. A 107-
unit project at 1285 Sutter Street is expected to be the first to
complete construction in April 2013.
Reis predicts 3,730 apartment units
will be added in SoMa
from 2013 to 2017, most of them in the next three
years. In February 2013 the first of these units came on line at the
326-unit Rincon Green development. The largest condo project here was the 319-unit
Madrone, which completed construction in November 2012, but many more condo projects are currently in development.
In the 7,072-unit South Marin
submarket, the fourth quarter vacancy
rate was 2.5%, and the average asking rent was $1,849 per month. Reis predicts 868 apartment units will be added in North Marin and 548 in South Marin from 2013 to 2017. The 36-unit first
phase of the Preserve at Marin is under construction in Corte Madera.
The 14,294-unit North San Mateo
submarket has a vacancy rate of
4.2%, second highest among the submarkets, with an average asking
rent of $1,779 per month. Reis expects 783 units to be added here from 2013 to 2017, including the 510-unit Pacific Bay Vistas development under construction in San Bruno.
After three years of
limited new supply, the
Oakland Metro Area
market ended 2012
tight and increasingly
expensive. The average effective rent increased 4.6% to $1,371 per month. The
vacancy rate fell to 3.0% in January 2013 and Reis predicts the rate will slip to 2.8% by the end of 2013. Demand is expected to remain strong, but new
supply is expected to resume following the financial crisis driven slowdown.
SOFT-STORY RETROFIT LEGISLATION PASSED
On April 18, 2013, SF Mayor Ed Lee signed into law the Mandatory Soft Story Retrofit Ordinance. This legislation requires the evaluation and retrofit for “multi-unit soft-story buildings,” defined as: Wood-frame structures, containing five or more residential units, having two or more stories over a "soft" or "weak" story, and permitted for construction prior to January 1, 1978. Beginning in late fall or early winter of 2013, the City will send notices to all properties meeting that definition regarding compliance and certification procedures and requirements.
Further information can be found here: CAPSS Website
All information and projections are from sources deemed reliable, but may contain errors, are not warranted
and subject to revision. Charts, tables and analysis by permission from Reis Reports.
Paragon Commercial Brokerage, May 2013.