Market View

Just Around the Corner

written by Jay Greenberg

Only time—and strong leadership—can tell what the future holds for San Francisco.

What a year 2020 has been. We started off the year with solid fundamentals and strong transaction numbers. Then COVID-19 hit and with it came the shelter-in-place orders. As the shelter-in-place orders evolved, so did people’s lives and priorities. Next, we had civil unrest, and then the fire season hit us. We all remember waking up that dark Wednesday morning thinking, “What else can happen next?”

Well, for all of us who are still here, life goes on—we either evolve or we don’t. These are definitely tough times for owners and agents; we are battling to keep our units full and keep transactions moving forward. There is good news in the reported statistics with value indicators remaining fairly steady. The number one issue for us all today is the unprecedented decline in rents and the exodus from the city. At some point, San Francisco residents will need to start electing qualified leadership to solve the problems that plague this famous piece of land. We have received some good news from the latest election, and I am hoping that by the time this article is published the presidential election results are finalized and we are moving forward.

The following are approximate statistics for January 1, 2020 – September 30, 2020, pertaining to the 5-9-unit-sector and the 10-plus-unit sector versus the same time period for 2016, 2017, 2018, and 2019.

5-9 Units
The average price per square foot has bounced up and down over the years, from $564 in 2016, to $521 in 2017, $553 in 2018, and $549 in 2019. This year, we ended the third quarter with an average of $570 per square foot, the highest in five years. Gross Rent Multipliers (GRMs) had been on the rise since 2009, and now we are retreating from the high mark of 21.48 that was set in 2015. The average GRM was 18.16 in 2016, 18.23 in 2017, 18.3 in 2018, and 17.22 in 2019. This trend has continued through 2020, as we ended the third quarter with an average GRM of 16.01, which is a low mark considering the previous year and an approximate 7% decrease in a year-over-year comparison.

The average cost per unit has also jumped around over the reported period. The average cost per unit through the third quarter was $488,000 in 2016, $466,000 in 2017, $494,000 in 2018, and $491,000 in 2019. Through the third quarter in 2020, the average price per unit bumped to $500,000, which is a new high for the five-year window.

Dollar volume for the 5-9-unit sector (through the end of September) has been very strong since 2016. Prior to 2016, the highest dollar volume we had recorded was $178 million (2014). Dollar volume jumped to $220 million in 2016—since then, we have topped $200 million every year, with 2020 being the exception. 2017 and 2018 were banner years, with dollar volume reaching $244 million, with another increase to $265 million in 2019. At the end of the third quarter in 2020, dollar volume dropped below the $200 million mark to $188 million in sales volume, a 29% decrease in a year-over-year comparison.

The number of transactions has remained steady for the 5-9-unit sector since 2016. There were 73 sales in 2016, 87 sales in 2017, 77 sales in 2018, and 81 sales in 2019. By the end of the third quarter in 2020, there were 60 sales, which is a 5-year low and a decrease of 26% in a year-over-year comparison.

10-Plus Units
Similar to the 5-9-unit sector, the average price per foot has bounced up and down in this category as well. The average price per square foot was $553 in 2016, $548 in 2017, $633 in 2018, and $600 in 2019. By the end of the third quarter in 2020, the average price per square foot was $569. GRMs followed a similar pattern. The average GRM was 17.14 in 2016, 17.06 in 2017, 18.31 in 2018, and 16.05 in 2019. In 2020, the downward trend continued with the average GRM coming in at 15.72 times gross.

The cost per unit had been trending up since 2016, but this has now reversed. The average cost per unit was $384,000 in 2016, $394,000 in 2017, and $460,000 in 2018. This number started to decrease in 2019 when the average cost per unit came in at $440,000, and in 2020, we saw another decrease to 424,00 per unit.

In 2016, dollar volume for the 10-plus-unit sector hit the lowest mark we’d seen since the financial meltdown in 2009, with total sales coming in at $285 million. Dollar volume increased over the next two years with total sales reaching $455 million in 2017 and an astounding $919 million in 2018. In 2019, dollar volume came back down to $436 million, and there was another decline in 2020, with $325 in total sales—a 25% decline in a year-over-year comparison.

Just like dollar volume, there was a record low (since the financial meltdown in 2009) number of transactions in 2016, with 43 closings. There was an increase to 64 closings in 2017 and a record-setting increase to 81 closings in 2018. In 2019, the number of closings dropped to 50, and then dropped even further in 2020
to 37 closings, a 26% decrease in a year-over-year comparison.

The source of the numbers reported come from Jay Greenberg & Trigg Splenda Compass Commercial, San Francisco Multiple Listing Service, and Costar Comps.

As an active frontline sales agent who is consistently closing transactions, I can say that nothing is coming easy in this marketplace. And it’d be a mistake to consider any transaction complete until escrow has closed. Pending transactions with all contingencies removed are still being renegotiated or cancelled.

In summary, value indicators for the 5-9-unit sector remain steady with a slight drop in GRMs and a slight increase in price per square foot and price per unit. Pricing in the 10-plus-unit sector has remained fairly steady with slight decreases in each value category. Dollar volume and number of transactions are off approximately 25% across the board.

All things considered—and there is much to consider—I feel like this is good news.

The biggest factor shaping current conditions in the marketplace today is a continuing deterioration of the rental market that has been fueled by an exodus of residents from San Francisco as remote work guidelines are allowing workers more freedom in choosing where to live. The latest report from United Van Lines shows that outbound moving requests from the city were 128% above the national average at the start of September.

Data from Zumper showed a continued yearly decline of 20.3% in median rent prices in San Francisco this month, which was among the largest yearly decline ever recorded, marking a milestone as prices dropped below $3,000 for one-bedroom apartments in the pricey metro.

ApartmentList data shows that rent prices declined in San Francisco by a larger amount than any other city they track as well. The CEO of Zumper has called the San Francisco price decline “unprecedented,” adding that it supports the theory that people are starting to leave the city as options for remote work in the technology sector become widely available. Some companies, like Twitter and Facebook, have given employees the option to work from home permanently. The hand that feeds also takes away.

I am writing this article on November 4th and elections results are still being processed. Proposition 21 was rejected again by state voters, which is great news for our industry. If this proposition had passed, we would certainly be dealing with vacancy control when the majority of city tenants/residents are locking in the best units and rents they can find. It also appears that Proposition 15 has been narrowly defeated, which would have made commercial properties exempt from the Proposition 13 tax rate protections that were established in 1978. If Prop. 15 had passed, commercial properties would be reassessed and taxed at current value. San Francisco Proposition I has passed, which doubles the already absurd transfer tax of 2.75% to 5.5% on sales of $10 million or more. A $10 million sale will now cost sellers a $550,000 transfer tax. The same sales price in Santa Clara currently cost sellers a $21,000 transfer tax.

Lastly, preliminary results show Joe Biden as the presidential winner. Hopefully by the time this article is published, the vote and results will be final. I think everyone is ready to move forward into a new year.

The tech jobs that have been driving our rental market for years are now virtual—for the time being, tech workers are not required to be in the region. Our market is pending on legislative propositions, the presidential election, COVID-19, an ever-growing homeless population, and a city government that is unqualified to address the issues they have created. We will have to wait to see if the market’s current declines are permanent or a short-term trend in the coming year.

For additional information related to any data points and/or market news, please contact Jay Greenberg at