Market View
By Jay Greenberg
As I travel the terrain of San Francisco, meeting with owners and touring our stock of apartment properties, I feel as though I am riding a roller coaster. My morning starts with an appointment in the Marina and then up to Russian Hill to view a property. From there, I go back down to North Beach to drop off a contract, up to Telegraph Hill for a showing, and finally down the back side of the hill to my office on Battery Street. My morning is quite similar to our real estate market with none of us quite sure what is around the bend.
We all know the point when we stepped on the roller coaster. Depending on when you got on board determines what your ride has been like so far. For those veterans, the ride has been a good one; for more recent newcomers, there was an exhilarating climb followed by a scary drop; and for the newest and most recent ones, the ride has also taken a scary drop.
Have rents stabilized? I believe the answer is unknown at this time. In my opinion, rents have fallen at least another ten percent since November of last year. At this point, we appear to be back at 1998 rent levels. This is quite disappointing especially in a rent-controlled city. A good thing is that Mr. Greenspan is watching over us with interest rates at historically low levels.
What is around the bend? Lower Gross Rate Multipliers (GRM’s) accompanied by lower cost per square foot? Sounds logical, but logic does not always fly around here. There has been an erosion of value when fallen rents are applied to steady GRM’s. However, values are still creeping ahead. Cost per square foot and cost per units have risen and GRM’s remain steady. Can someone explain this because my professors taught me a different theory?
Meanwhile, the sales dollar volume for the five-to-nine-unit sector is up from last year, with the number of transactions declining—another theory I was not taught. In the ten-plus-unit sector, the number of transactions and dollar volume has fallen. Typically the first quarter of the year is the slowest time for our market while we all work on reporting to our partner Uncle Sam.
We will have to see where we are headed as the first quarter comes
to an end. Will inventory increase and will values adjust? Will
rents stabilize? What about the x factor (interest rates)? My advice
is to strap on your seat belt and hold on tight.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Jay Greenberg is a real estate broker with Marcus & Millichap. He can be reached at 415-391-9220 ext. 300. © Copyright 2002.