Market View
by Jay Greenberg
The year 2002 was another solid year for San Francisco apartment buildings in an unstable time and economy. The popularity and strength of this product type is amazing when you consider all of the negative economic variables that equate to value. On the other hand, the rental market continues to suffer without much light shinning at the end of the tunnel. Our economy has been in a slump for several years now.
Everything is cyclical, so sooner or later the light will shine again. When we compare 2002 to 2001, the sales figures are remarkably similar. In the five-to-nine-unit sector, 87 transactions closed in 2002 versus 84 transactions in 2001. In terms of dollar volume, there was an increase of approximately 10 percent in 2002 versus in 2001. A 10 percent increase in dollar volume with only three additional closings is encouraging news. In the 10-plus-unit sector, 63 transactions closed in 2002 versus 61 transactions in 2001. In terms of dollar volume, there was a decrease of approximately 3.5 percent. Dollar volume for 2002 was $181.5 million. The sales figures for 2001 and 2002 are off approximately 15-20 percent from our peak years of 1999 and 2000. The past two years are very similar to 1997 and 1998. All things considered, 2002 proved a very good year for sales and values.
We all know the economy is suffering. Job loss continues in the city and the region. There is the possibility of continued cutbacks by large companies like Untied Airlines and Charles Schwab. The stock market continues to slump with little sign of recovery. The pending situation in the Middle East is in the forefront of everyone’s mind. These factors are creating uncertainty in all markets. Rents have fallen and vacancies have risen. Throughout all this negativity and uncertainty, the San Francisco apartment building market has remained strong and stable. Some things just don’t change. The desirability of San Francisco as a place to live, coupled with the lack of available land, makes our product a limited commodity. Home prices remain strong, and the gap between renting and owning continues to widen. Obviously, investors are bullish on the future of San Francisco apartment buildings. Well-priced listings are still selling quickly with multiple offers, while poorly priced listings are sitting and becoming stale. I recently closed a beautiful 15-unit Marina apartment building that was purchased by my sellers during the peak market in 1999. We sold the building for $50,000 above what they paid during the 1999-peak market, despite a lower gross income. A lower income, higher price, and declining rental market prove the strength and desirability of this product type.
I believe the market will remain steady throughout the first half of 2003. The first quarter is always the slowest time of year for transactions. Most investors and owners are now dealing with taxes. Activity, however, usually picks up around April. There are several wild cards that could change things quickly. Only time will tell.
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. Copyright © 2003 San Francisco Apartment Magazine