Market View
by Jay Greenberg
I hope everyone had a happy and healthy holiday and survived our recent monsoon season. This past year (rained) reigned supreme for San Francisco’s apartment sales market and apartment values. The momentum of 2004 appears to be continuing in this first quarter of 2005. In contrast, the rental market remains sluggish without any significant positive economic news.
The year 2004 proved an amazing year in the San Francisco apartment market. Dollar volume in the 5-9-unit sector for 2004 was $243 million versus $165 million in 2003, an increase of approximately 32%. Dollar volume in the 10+ unit sector for 2004 was $287 million versus $123 million in 2003, an increase of approximately 57%. These are very impressive increases when you consider the strength of the 2003 statistics. This is the highest dollar volume that I have seen in the past decade.
The number of transactions in the 5-9-unit sector for 2004 was 195 versus 156 in 2003, an increase of approximately 20%. The number of transactions in the 10+ unit sector for 2004 was 135 versus 62 in 2003, an increase of approximately 54%. The increase in the number of transactions did not hinder the rise in values as hungry investors continued to compete ferociously for the available product. Well-priced properties are still attracting hordes of buyers and bidding wars.
A recent offering on a high-profile trophy property came to the market without an asking price. The marketing package contained a suggested value range. I know several firms that competed for this listing, with their proposed pricing in the lower end of the suggested value range. The property received multiple offers, creating a bidding war and is in contract above what any pricing expert or aggressive investor could ever imagine.
The average gross rent multipliers (GRMs) have risen more than 1 point to 14.05 in 2004 from 12.99 in 2003 for the 5+ unit sector of the market. The average cost per square foot for the same sector has risen to $246 in 2004 from $232 in 2003.
This information is great if you are selling your property; but for owners, the struggle continues. There were slight gains in population and employment this year but nothing significant occurred. Renters continue to take advantage of the current interest rates to exit the rental market into home ownership faster than they can be replaced. Owners are having difficulties keeping their properties 100% occupied with quality tenants without making some concessions.
Long-term interest rates did not jump as anticipated in 2004. Instead, the 10-year Treasury rates hovered between 4.0 percent and 4.7 percent throughout the year. Many investors took advantage of this low-rate environment to finance their purchases. In 2005, inexpensive capital for acquisitions will continue to remain available. As economic growth gains traction and inflationary pressure slowly builds, long-term interest rates will gradually climb 100 to 150 basis points during the year. Granted, rates will remain low as measured against historical standards. With rising rates a certainty, the financial dynamics of some deals may be altered. The Fed has begun raising short-term rates and will continue to tighten these in 2005. Rate hikes are anticipated at a measured pace, assuming inflation does not rise beyond expectations.
For more information regarding these sales or current market conditions, contact me at the number listed below.
Partial list of sales for December 2004:
San Francisco Apartment Sales (10+ units)
| Sales Price | Units | Sq.Ft. | |
| 1656 Leavenworth | $1,988,999 | 12 | 7,500 |
| 540 Stockton | $1,815,000 | 11 | 7,320 |
| 626 Powell | $4,300,000 | 34 | 15,695 |
| 1163 Pine | $2,250,000 | 13 | 10,200 |
| 720 Jones | $4,600,000 | 42 | 22,075 |
| 2240 Lombard | $3,320,000 | 15 | 14,100 |
| 2474 Washington | $3,030,000 | 15 | 8,688 |
| 1030 Franklin | $2,615,000 | 23 | 13,600 |
| 1340 McAllister | $2,258,000 | 18 | 8,635 |
| 622 Shrader | $1,510,000 | 20 | 6,240 |
| 277-285 14th St. | $1,715,000 | 22 | 10,200 |
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of 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 © 2005 by the San Francisco Apartment Magazine. All rights reserved.