Market View
By Jay Greenberg
The hangover from the holiday season is behind us now, and hopefully everyone has had a successful start to 2004. There are many positive events occurring in and outside of the San Francisco apartment market that are keeping this train rolling at full speed. Serious sellers are still in the driver’s seat with hungry buyers. Interest rates remain at historic lows, pushing values to historic highs. Job loss and migration from the city has dropped from huge losses over the past few years to a standstill with gains expected this year. Rental decreases have also dropped, and consumer confidence is on the rise. I am expecting a fun and exciting ride this year for our apartment housing market.
The sales market for apartment buildings in the city during 2003 and early 2004 is extremely active and competitive. All reasonably priced offerings are receiving tremendous amounts of activity. I recently listed a property that attracted over 90 buyers to the property the first week. Multiple offers and overbidding are not unusual. If this level of activity does not occur within several weeks of marketing, then there is probably a pricing issue that needs to be addressed.
In 2003, there were 115 sales of 5-9 unit buildings compared to 85 in 2002. Dollar volume in 2003 for the 5-9-unit sector was $117 million compared to $101 million in 2002. In the 10+ unit sector, we had 67 sales in 2003 compared to 63 sales in 2002. Dollar volume for 10+ units in 2003 was $174 million compared to $204 million in 2002. There has been steady demand for this product type for the past decade when we look at dollar volume and the number of transactions.
Interest rates remain at historic lows, keeping values at record levels. The average cost per square foot for a 10+ unit building jumped from $211 in 2002 to $237 for 2003. The ability to borrow a majority of the funds for the purchase of apartments and homes has created a boom in our industry for some time now. The financial markets are on the rise and at their highest levels in the past year. This is a direct reflection of consumer confidence and our rebounding economy.
We experienced dramatic job loss and migration from the city in 2001 and 2002. In 2003, there was more uncertainty about continuing losses fueled by the United Airlines bankruptcy and the possible loss of 17,000 more jobs from the airline. For the time being, we seem to have dodged this bullet with United. Rental decreases have dropped dramatically from as high as 40 percent several years ago to approximately 3 percent now. With job loss and migration from San Francisco coming to an end, we are expecting rents to slowly begin to rise. The end of dramatic rent decreases and the continuing pressure on the low- and medium-priced housing market has widened the affordability gap between renting and owning and will begin to pressure rents.
There are currently a lot of buyers with excess capital
in the market looking to place these funds. Historically
we have a shortage of inventory in the first quarter
of each year. This problem seems to correct itself as
we near the tax deadline of April 15. I am expecting
interest rates to remain steady this year, with the above-mentioned trends continuing with
additional momentum. The train kept a rollin’
along, so enjoy the ride.
San Francisco Apartment Sales (10+ units)
| Address | Sales Price | Units | Sq.Ft. |
| 1121 Bush St. | $2,100,000 | 17 | 11,594 |
| 324 Larkin St. | $3,332,000 | 22 | 15,680 |
| 1207 Chestnut St. | $3,250,000 | 12 | 13,125 |
| 1320, 1340, 1360 Lombard St. | Non-disclosure | 110 | 90,780 |
| 2525 Larkin St. | Non-disclosure | 13 | 23,891 |
| 2510 Van Ness Ave. | Non-disclosure | 12 | 15,163 |
| 1520 Gough St. | Non-disclosure | 38 | 18,216 |
| 1677 Bush St. | $2,750,000 | 21 | 11,340 |
| 1025 Steiner St. | $1,405,000 | 12 | 5,352 |
| 320-326 14th St. | $1,950,000 | 16 | 11,105 |
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Jay Greenberg is a real estate broker with Marcus & Millichap. He can be reached at 415-391-9220 ext. 300. Copyright © 2004.