Market View
by Jay Greenberg
While the rest of the U.S. in burning up, we are enjoying another beautiful summer in Northern California. The value indicators for the San Francisco apartment market continue to defy odds and climb higher. Dollar volume and number of transactions has cooled off from a record-setting year in 2004. The rental market has shown signs of life and appears to have some positive momentum. Employment and population growth continue to show slight gains and lastly, the Fed is continuing its efforts to control inflation and raise short-term interest rates.
How high is high? We have all seen a tremendous amount of media coverage on the bubble-bursting theory of late. I am hearing the term everywhere these days. San Francisco apartment values continue to move higher, to the dismay of many observers. The values have been rising in this market for the past ten years.
The following are year-to-date statistics for the 5-9-unit sector through June 30, 2005, versus the same time period for 2004: The average price per square foot has increased from $274 in 2004, to $291 in 2005. GRMs have increased from 14.12 in 2004 to 16.76 in 2005, and the cost per unit has risen from $238,000 in 2004, to $268,000 in 2005. For the 10-plus-unit sector in the same time periods, the average price per square foot increased from $224 in 2004, to $262 in 2005. GRMs have risen from 12.87 in 2004 to 13.02 in 2005, and the cost per unit has ticked upward from $158,000 in 2004 to $161,000 in 2005.
The dollar volume and number of transactions have slowed down when compared to 2004. I believe the numbers are down from last year's statistics for several reasons. First, 2004 was a record year in both these categories, blowing away the statistics from the previous years. Second, there is currently and has been a large inventory of overpriced properties for sale. Sellers are looking to cash in on the market hysteria. Buyers are proceeding with caution and weeding out the better-priced properties and closing market transactions with motivated sellers.
The following are year-to-date statistics for the 5-9-unit sector through June 30, 2005, versus the same time period for 2004. Dollar volume in 2004 was $103 million, versus $84 million in 2005. The number of transactions in 2004 was 66, falling to 50 in 2005. For the 10-plus-unit sector in the same time period, dollar volume was $130 million in 2004, versus $82 million in 2005. The number of transactions in 2004 was 40, dropping to 33 in 2005.
The rental market has shown positive signs over the last few months. I have personally seen an increase in volume of renters looking for average-cost apartments in San Francisco. Late last year and early in 2005, I was having a difficult time finding real renters in the market. Since April, I have been able to fill my vacancies within 30 days to qualified tenants. This was not happening earlier in the year and late last year. As summer has progressed I have been renting units in less time with less showings. I have not experienced any rental increase, however traffic is certainly higher. Our rents have been falling or flat for the past six years; sooner or later pressure will reappear in the rental market.
For the past two years we have seen slight gains in population and employment in San Francisco. This trend continued through June 30, 2005. Employment has moved from 862,000 in 2004, to 882,000 in 2005. Labor-force population has also grown from 912,000 in 2004 to 925,000 in 2005.
Interest rates remain steady and at excellent historical levels, which is fueling our real-estate economy. The Fed has raised short-term interest rates ten times since June 2004. The benchmark short-term rate has climbed from 2.25 to 3.25 since June 2004. These calculated raises have not effected long-term rates with the 10-year Treasury as of the date of this article, at 4.12% down from 4.69% on June 29, 2004, the day before the rate hikes began. Greenspan is still worried about inflation, gas and oil prices, and about the stubborn long-term rates continuing to fall. I do not see any dramatic changes to the current rates or sales market through the end of this year.
Partial list of sales for March 2005:
San Francisco Apartment Sales (10+ units)
| Sales Price | Units | Sq. Ft. | |
| 1209 Bush St. | $2,490,000 | 23 | 9,420 |
| 1201 Laguna St. | $4,370,000 | 37 | 19,836 |
| 545 Broderick St. | $1,850,000 | 12 | 9,615 |
| 320 14th St. | $2,075,000 | 16 | 11,105 |
| 226 27th St. | $1,975,000 | 11 | 6,511 |
| 1850 Clay St. | $4,900,000 | 20 | 16,587 |
| 1229 Francisco St. | $6,955,000 | 17 | 23,050 |
| 895 31st Ave. | $2,210,000 | 9 | 8,505 |
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 415-625-2115. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.