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Housing Market SFO
Outlook for San Francisco, CA
Continued operational softening in the apartment market is expected as rents re-balance to more sustainable levels. As with other markets, job loss is unavoidable and with concerns about local employment opportunities top of mind, some renters have chosen to double up or move for more affordable rents in surrounding Bay Area communities.
Owner reaction to an increase in vacancy rates has been to reduce rents in certain city neighborhoods like Russian Hill and Pacific Heights. Here, rent contraction has been acute following rent advances in previous years. In the South of Market neighborhood, where development has been focused in an effort to attract an increased residential presence, a rise in supply will push vacancy above the average for the metro area. However, San Francisco’s investment situation will continue to transition through the end of the year as buyers and sellers keep their eyes on shifting valuations resulting from the continued economic slowdown.
Despite a market that now gives tenants the edge due to higher vacancies and less pricing power, forecasts issued by leading real estate investment services firm Marcus & Millichap earlier this year indicated that “Because the fundamentals of the rental market in the Bay Area are relatively healthy, even in the worst case scenario, vacancies will be in the five-six percent range, which traditionally is considered a low vacancy rate.
Sales Picture
Realistically, investors will remain cautious before opening their checkbooks. However, an increase in lender-owned properties could spark some trading in the near future, as both buyers and seller are
better able to get their arms around the movement in current market values. While homeownership has become more affordable due to lower asking prices and foreclosures, San Francisco retains one of the highest median home values in the U.S. and a large renter base that will shore up and sustain apartment demand.
Those property owners who find themselves overleveraged will most likely realign their portfolios as a result of not meeting their assumptions for higher rent growth. This is forecast to be a limited trend since many of the investors that were active in the multi-family- housing salad days traded with conservative loan-to-value ratios. This has led to activity among lender-owned properties, setting the stage for expected price corrections, and is creating interest among formerly inactive investors and others looking to re-energize their portfolios. Meanwhile, cap rates are percolating upwards. Properties in the more desirable northern neighborhoods are generating yields in the mid 5 percent range, while properties in the area south of California Street are yielding cap rates 100 basis points above average.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. 2010 Residential Rental Housing Market – San Francisco California Outlook is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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