The Sheridan Report
by Matthew C. Sheridan<
While meager gains in employment continue nationally, the San Francisco Metropolitan Statistical Area (MSA), which includes the counties of Marin, San Francisco and San Mateo, has experienced sustained employment growth over the past year. Continued strength in the professional- and business-services sectors, along with strong increases in the trade, transportation and retail areas, helped create 10,500 jobs between December 2003 and December 2004. The unemployment rate for this area’s MSA now stands at 3.6%, down from 4.6% a year ago. San Francisco has the highest unemployment rate at 4.5%, followed by San Mateo at 3.0% and Marin at 2.4%.
The national economy continues to grow at a healthy pace, but cautionary indicators persist. The Commerce Department is predicting the country’s gross domestic product for 2004 will rise 4.4%, up from 3% growth in 2003. The Conference Board’s Index of Leading Economic Indicators dipped in January, after two months of gains preceded by five months of declines. Consumer confidence fell in February, oil prices bumped back up, and weak job gains persisted.
Help Wanted Index
San Francisco’s Help Wanted Index, a key barometer of the local job market supplied by The Conference Board, dropped 5 points in January. The index now stands at 13, down from 18 in December, and down 9 from one year ago (the benchmark stood at 100 for the year 1987). The national index rose 3 points in January, to 41 from the previous month. This index measures help-wanted-advertising volume in 51 major newspapers across the country. While the 80-point drop for San Francisco since 2000 is due in large part to the massive job losses that have occurred over the last four years, the decline in the index could also be due to the local prevalence of Craigslist. This most popular online connection site has definitely impacted classified advertising sections of local newspapers.
Over the past three months, help-wanted advertising increased in eight of the nine regions across the U.S. “The concern voiced by consumers is whether the pace of job growth will turn out to have been as good as it gets,” said Conference Board Economist Ken Goldstein. “If new jobs continue to open up, ;consumer expectations could turn even more positive this spring, and that could cause more people who are not working to start looking for jobs.”
Vacancy Rates
Meanwhile, a comfortable balance has returned to San Francisco’s rental market. The city’s vacancy rate for residential rental property fell to 5.2% for the fourth quarter of 2004, down from 8.1% in the third quarter. The average rate for the last year now stands at 7%, down from 7.9% for 2003. A rate that hovers around 5% is a clear indication of a rental market that is in equilibrium, a condition San Francisco has rarely experienced over the past few decades.
The rental market appears to have hit a soft patch though since the beginning of the New Year. “Through January, we were going like gang-busters, but it came to a screeching halt in February,” said Michelle Horneff-Cohen of Property Management Systems in San Francisco. She believes the market will reawaken soon, with owners in a stronger position and tenant concessions a thing of the past. “We haven’t done that in nine months—there are no more concessions upon move-in.” She has witnessed, however, an increase in potential tenants who fail to meet the traditional standards for leasing. When a person has poor credit, a weak rental history or a diminished ability to pay rent, Horneff-Cohen resorts to seeking a cure, such as requiring guarantor, additional deposits or paying off a debt.
Gavin Coombs of Rental Radar, a firm that specializes in high-end leasing in San Francisco, confirms the weakness of the current rental market. “At the high-end, the leasing market continues to be somewhat soft,” said Coombs. He expects the weakness to continue in the foreseeable future and encourages owners to continue the practice of making& “optimal presentations” of vacancies in order to capture the attention of all prospective tenants.
Rents
Rents in San Francisco jumped a bit during the fourth quarter of 2004, rising to an average price of $1,829 for all unit types, up $52 from the third quarter and up $60 from the same period a year ago. Tenant demand, meanwhile, remained flat in the fourthquarter at $1,697 for all unit types, down $1 from the previous quarter and down $15 from a year ago (tenant demand is the maximum rent a tenant is willing to pay for the average apartment). The price differential between asking rents and tenant demand now stands at $132, the greatest disparity in the past two years.
| Asking | Demand | |
| Studios: | $1,077 | $933 |
| 1 Bedroom: | $1,574 | $1,589 |
| 2 Bedrooms: | $2,174 | $1,237 |
| 3 Bedrooms: | $2,605 | $2,000 |
| All Units: | $1,829 | $1,697 |
The rental market in San Francisco is always seasonal, with the months of January, June and August the busiest. If the upward trend in local employment continues, and the usual influx of college graduates and transplants occurs this summer, look for rents to perk back up, and vacancy rates to drop. But keep an eye on the financial markets, trade imbalances and federal deficit, for there may be a storm on the horizon.
San Francisco Index
| SF MSA Unemployment Rate | 4.8 % |
| SF MSDA Unemployed | 42,85 |
| SF MSA Employed | 947,133 |
| Help-Wanted Index | 20 |
| Housing-Affordability Index | 12 |
| Median-Priced Home/Condo | $616,917 |
| Residential Rental Vacancy Rate | 8.1% |
| Average Asking Rent | $1,754 |
| Tenant-Demand | $1,740 |
| Lowest-Priced Rental | $690 |
| Office Vacancy Rate | 18.4 % |
| Gallon of Gas | $2.23 |
(All data listed are one-year averages, except for lowest-priced rental)
Sources: 1: U.S. Census Bureau. Stand
ard error for Q3 2004 was 1.8%. 2: California Employment Development Department; nonfarm payroll jobs, not seasonally adjusted. 3: MetroRent. Graph represents the average asking rents for all unit types. Tenant demand is defined as the maximum rent a prospective tenant is willing to pay for an apartment. 4: U-Haul Corporation. 5: U.S. Bureau of Labor Statistics. 6: John Oldfield with Prudential California Realty. 7: Phillip J. Boersma with Arroyo & Coates, www.phillipboersma.com. 8: DataQuick. Median home price includes all single-dwelling homes and condominiums, new and resale. 9: Office of Federal Housing Enterprise. The Home Price Index measures the average price changes in repeat sales or refinancing of the same single-family properties involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. 10: San Francisco Rent Board.
San Francisco Index Sources:
(in order of appearance) California Employment Development Department (items 1-3); The Conference Board, California Association of Realtors, DataQuick, U.S. Census, MetroRent (items 7 and 8); San Francisco Chronicle, BT Commercial Real Estate and AAA of Northern California.
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. The Sheridan Report does not make any guarantee, warranty or representation as to the completeness or accuracy of the information contained herein. Matthew C. Sheridan is the editor of the San Francisco Apartment Magazine and Rental Housing. For more information, please visit www.sheridanreport.com. Copyright © 2005. All rights reserved.