Bay Area Apartment Market Report – Paragon Commercial Brokerage

The San Francisco Bay Area Apartment Building Market

The Paragon Commercial Brokerage – Reis Reports
2nd Quarter 2013 Market Update

“Welcome to what is arguably one of the worst cities in America to be a renter, but among the best to be a landlord and apartment investor. San Francisco led the top-50 U.S. metropolitan areas in average rent growth during the second quarter, jumping 7.8% to $2498, while Oakland was No. 2 and San Jose was in fifth place. The rent increases have investors rushing to purchase existing properties.”

The Wall Street Journal, July 17, 2013, “Bay Area Rally Sends Rents Soaring”

The West Bay area of metro San Francisco (SF, Marin and San Mateo counties) continued to boom through 2012 and into 2013, even as it became increasingly expensive. The 136,980-unit market-rate investment grade San Francisco apartment market has rock bottom vacancy and high rents. While the pace of population growth is not high in the densely developed and expensive West Bay, it is still solidly positive at an estimated 9,770 in 2012 and a forecast 11,270 in 2013. Even higher increases are predicted for later years by Moody’s Economy.com. It seems people will pay any price to live in San Francisco, as long as a growing number of advanced, high paying jobs are available.

The East Bay apartment market (Alameda & Contra Costa Counties) also tightened further in early 2013, although rent gains remained more moderate.

The Bay Area has a long history of boom and bust dating back to the Gold Rush of 1849 and continuing through the dot-com bubble and bust little more than a decade ago. When the previous tech boom ended, not only did the number of jobs plunge but so did the population. Moody’s Economy.com does not expect a repeat. Instead, employment is forecast to keep growing at a somewhat slower pace, surpassing the 2000 employment peak some time in 2015. Reis predicts a leveling off of the current strong conditions in the apartment market, rather than a frenzy followed by a collapse. The well timed arrival of new supply will keep rent gains in check, while pent up demand will ensure the units are absorbed, barring an unexpected economic shock from outside the Bay Area.

The first three charts below pertain to San Francisco County alone and then only those listings and sales reported to MLS. The specific numbers should be considered approximate, but the trend lines apply to and illustrate the overall Bay Area market: low supply + high demand = higher prices.

1Supply
The supply of investment properties available to purchase as listed by SF MLS has dropped by over 50% over the past 3 years.

2Demand
While supply has plunged, demand has soared as measured by this statistic, percentage of listings accepting offers.

3Appreciation
The supply and demand dynamic, super-charged by improving economic conditions, rapidly rising rents and extremely low interest rates, has led to a rapidly appreciating market. This chart tracks average dollar per square foot values.

In the analyses below, the San Francisco Metro Area is comprised of San Francisco, San Mateo and Marin counties, while the Oakland-East Bay Metro Area consists of Alameda and Contra Costa counties. When mixing many buildings of very different size, quality and location, all the statistics should be considered very generalized and approximate. The county of San Francisco itself typically has significantly higher rents and values than the other counties.

SAN FRANCISCO METRO AREA RENTS & VACANCY

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OAKLAND-EAST BAY METRO AREA

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SALES ACTIVITY

In the West-Bay SF Metro Area, the Civic Center/Downtown submarket led the rest in units sold over the past four quarters at 1,370, and dollar value of sales at $266 million. Among submarkets with substantial sales price per unit, Marina/Pacific Heights leads in price per unit at $478,442. Generally speaking, as the market appreciates, Gross Rent Multiples are heading higher and Cap Rates lower.

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OAKLAND-EAST BAY METRO AREA

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NEW CONSTRUCTION

For the 3-county, west SF Metro Area, 2,300 apartment units are expected to complete construction in 2013, followed by 3,600 in 2014. The three years to follow are expected to see less new supply, but still more than 1,000 units completed in each year. Whatever number of apartments is built, however, Reis expects net absorption to match it as pent up demand is met. The only question is at what rent level.

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In Alameda and Contra Costa counties, apartment developers are re-starting projects shelved during the recession, and the under construction total has risen to about 1,760 market-rate units. There are also 1,226 subsidized and senior housing units under construction. Relatively few units, however, are expected to complete construction this year, allowing the vacancy rate to fall to a low point of 2.5% at year-end.

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SELECTED SUBMARKET SNAPSHOTS

The 15,771-unit Civic Center/Downtown submarket has a first quarter 2013 vacancy rate of 3.5% and an average asking rent of $1,604 per month, the lowest among eleven submarkets according to Reis. The 417-unit second phase of Trinity Plaza was projected to complete construction in summer 2013. The 750-unit Crescent Heights broke ground in January 2013 for completion in April 2014.

In the 9,787-unit Russian Hill/Embarcadero submarket, the vacancy rate is 2.5%, and the average asking rent is $2,767 per month, the highest in the West Bay area according to Reis.

In the 8,084-unit Marina/Pacific Heights submarket, the first quarter vacancy rate is reported by Reis at 2.0%, the lowest in San Francisco proper, with an average asking rent at $2,368 per month. “The Marina, the tract with the highest creative class concentration in San Francisco, has a reputation for being chock-full of young former fraternity members,” according to the Atlantic Cities. “As the San Francisco Chronicle notes, ‘Today the apartment buildings, shops, and restaurants seem to be bursting at their seams with beautiful, young and fit 20- and 30-somethings.”

The 16,018-unit South of Market (SoMa) submarket has a vacancy rate of 5.0%, highest among the submarkets, and an average asking rent of $2,517 per month, the second highest market-wide. In the close vicinity of both the financial district and the high-tech, bio-tech hubs in the city, this is a very strong market. This submarket has dominated new supply recently, but while 1,032 units remain under construction here, new supply is spreading to other areas.

The 8,381-unit North Marin submarket has a vacancy rate of just 1.5%, the lowest among the submarkets, and an average asking rent of $1,608 per month, the second lowest according to Reis.

In the 14,713-unit Central San Mateo submarket, the first quarter vacancy rate is reported by Reis at 2.9%, with the average asking rent given at $2,006 per month, highest in the suburbs.

Outside Lands Festival TBA

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The Outside Lands Music & Arts Festival takes place on August 9th through 11th with dozens of bands and attractions. From singer-songwriters to DJs, jazz acts and cutting edge rock bands, all major music movements are celebrated alongside a host of local musicians, food vendors and visual artists representing San Francisco’s vibrant cultural community.

This green-conscious event directly benefits the San Francisco Recreation & Park Department with a special annual donation. The Outside Lands Festival is become one of the ultimate summer destinations for live music, food and wine fans. The fact that it takes place in the great city of San Francisco ensures an unparalleled entertainment experience. Come on out and join the fun!

August 9th through 11th
Golden Gate Park, San Francisco
General admission tickets

For more information go to www.sfoutsidelands.com

SF Transportation Statistics

We ran across the annual fact sheet published by the SFMTA and thought it interesting enough to justify a few charts. This data came from the November 2012 fact sheet. As context for the numbers, the population of the city is about 807,000 and the physical area is about 48 square miles.

Our favorite fact learned from the MTA report is that there is a specific citation for “driving through a parade” — hopefully performed very slowly and carefully. And we suppose a terrific number of unmanned cars must be rolling down our hills like golf balls, because there were 65,000 tickets issued for not curbing one’s wheels on an incline.

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Case-Shiller Home Price Index Up Again in May

Note: Case-Shiller Home Price Indices for “San Francisco” are for a 5-county area, of which the city’s housing market is a very small part. Since they are published 2 months after the month of the Index, are 3-month rolling averages, and the time between offer acceptance and closed sale typically runs 4-8 weeks, Case-Shiller is generally 3-6 months behind the market itself, i.e. when offers are being negotiated in the present. Case-Shiller publishes 4 main indices for SF Metro Area houses: an aggregate index for all price ranges, and then one index for each third of unit sales – low price, middle price and high price tiers.

The aggregate C-S Index for the SF Metro Area is up approximately 30% – 34% from its low point, but is still approximately 20% below its peak in 2006. Please note that for a drop of 30% to be recouped, the increase must be about 43%.

When the market fell from its peak in 2006-early 2008 (different areas and different market segments peaked at different times), the scale of the decline varied widely, mostly by price point. With the recovery that began in 2012 and has accelerated in 2013, the magnitude of the price recovery, as compared to previous peak values, has also varied by price point and area.

The lowest price range (terribly affected by foreclosures and distressed sales) fell most dramatically – an approximate 60% decline from its peak. It is now recovering dramatically on a percentage basis – up 38% from its low point – but is still way below its 2006 peak. It simply has much more loss to make up.

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The upper price range (the top third of unit sales) in the 5-county metro area fell much less than the 2 lower price tiers (low and middle) during the bubble pop. On a percentage basis, it’s increase from its low point – about 25% — is not as great as for the lowest price tier, but is now getting close again to its previous peak value. In the city of San Francisco itself, many neighborhoods have now reached or surpassed previous peak values reached in 2007-2008.

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This chart below illustrates the short-term monthly changes in the C-S high tier price index: the recovery in 2012 accelerating in 2013. May’s reading jumped 3.7% from April’s.

Case-Shiller_High-Tier_2011

And then looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area: many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices and that the rate of appreciation accelerated in the March-May timeframe. Note that median sales prices and C-S Index numbers do not correlate exactly.

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Updated Bay Area Home Value Map

Median prices almost always conceal large disparities in the prices of the underlying individual sales – this is particularly true for larger cities: in San Francisco for example, median house prices by neighborhood range from $465,000 to $4,000,000, and there will be similar disparities in Oakland and San Jose. But median prices can be valuable to show appreciation trends, and to some degree, to compare general home values between different areas. The last quarter was a period of rapid price appreciation virtually everywhere on this map.

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Is the Market Cooling? Let’s look at the weekly charts.

It’s typical for the market to slow down during the summer months (not as bad as the Thanksgiving to New Year slow down but still a slow-down). However, looking at the Weekly Charts below, statistically there is little sign of a cooling market – which doesn’t mean that it might not be: these supply and demand statistics won’t change if a listing gets 3-5 offers instead of 10-20 as long as it goes into contract. But even if it is cooling – which is not a certainty – it would still be a very-high-demand/very-low-supply market by any historical measure.

When a market is this strong, it’s not unusual for demand to keep up through the third week of August. Some listing agents believe late July/August is a better time to list – with inventory so low – than after Labor Day, when new listings surge again and there’s more competition. Other agents always wait til September.

These weekly market charts are for SFD and Condo listings only.

The number of Active Listings has been falling since summer began and is now at a level roughly comparable with February; it’s about equal to the number available last year at this time. It’s not unusual for inventory to continue to drop as the summer progresses — until that turns around after Labor Day. September is usually the month of the year with the highest number of new listings.

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The number of New Listings coming on the market has been falling from the spring “burst”, but new listings in the last 3 weeks are about 13% higher than the same period last year – which is a positive sign.

Blue Columns = Number of Listings Accepting Offers;
Red Columns = Number of New Listings Coming on Market

Over the past 5 weeks, new inventory is still being gobbled up as fast (actually faster) than it is coming on market:

7-21-13_New-vs-UC_Listings

Percentage of Listings Accepting Offers: Except for the slight (typical) decline in the 4th of July week (you see the same thing in the Memorial Day week), the percentages have continued to be very high, similar to the percentages we’ve seen since mid-February (which has been a red-hot demand period). Two years ago, the percentages ran 6% – 7%; now they’re twice that.

7-21-13_SFD-Condo_Percentage-UC

San Francisco Victorian & Edwardian Architecture

Victorian & Edwardian Architecture in San Francisco
An Illustrated Overview

One of the great charms of San Francisco is the wonderful variety of architectural styles that grace our streets – it’s not unusual to see half dozen distinct types of architecture on a single block. Here is a brief overview of the Victorian and Edwardian eras of home architecture with which the city is perhaps most identified – though, of course, many beautiful homes and buildings have been built since that era, and continue to be built.

The text, chart and photos are all courtesy and permission of the San Francisco architect James Dixon: James Dixon Website. We are most grateful for his generosity in allowing us to use them.

1Victorian-Edwardian Timeline
This is a fascinating timeline of the different styles of architecture that will be discussed in this piece, created by Architect James Dixon. It can be a little difficult to read, but is easier to decipher if you adjust your screen-view zoom larger. It can also be found online at James Dixon’s website.

2Gothic Revival: 1840 – 1890
The publication of Cottage Residences by Andrew Jackson Downing in 1842 became the spur for the Gothic Revival style in America. The residential offshoot, called Carpenter Gothic, used wood rather than stone and eschewed gargoyles and stained glass in favor of simpler ornament. Although some of the more extravagant homes may qualify as Gothic Revival, most can safely be called Carpenter Gothic. Characteristics of this style include pointed arches over doors and windows; steeply pitched roofs: turrets, pinnacles, crenellations; and leaded glass windows.

3Victorian Italianate: 1850 – 1890
In 1850, Andrew Jackson Downing published The Architecture of Country Houses. which popularized a new style: Italianate. The house at 807 Franklin is an elaborate example of the style, exhibiting many of the hallmark characteristics: quions along the edges; tall, narrow windows with rounded tops, porch portico, a slanted bay window, classical columns and pilasters, as well as the look of a building that should be made out of stone.
Additional Photos
 
 
 
4Victorian Stick: 1860 – 1890
These houses have long, thin pieces of wood, called “sticks,” applied to their surface, especially at corners. These sticks are meant to be both decorative and expressive of the underlying wood framed structure. In the 1870s these decorative elements became exceedingly numerous and elaborate. Homes in this new vein were called Stick Eastlake, which is actually a misnomer since Charles Eastlake, from whom the name derives, abhorred excessive ornamentation. San Francisco has the greatest concentration of Stick and Stick Eastlake style homes in the world.
More Photos
 
5Queen Anne: 1880 – 1910
The Queen Anne style came after many Victorian styles and it is not uncommon to see elements of preceding styles in one house. Two things make it easy to identify a Queen Anne: plasticity (“in-ness and out-ness”) and a continuous gable roof that is expressed at the street. Some houses that began as Italianate or Stick became Queen Anne after a remodel, and there are also some that are all three styles at once. The Victorians dreaded the vacant surface, everything was decorated. Characteristics include multi-textured facade; steeply pitched roof with gable front; conical, corner tower; cutaway bay windows; bands of ornament; and stained glass
More Photos

6Arts & Crafts: 1890 – 1910
Inspired by John Ruskin and William Morris, the Arts & Crafts movement started in England in the 1860s and started to influence American architecture around 1890. The movement advocated the use of locally sourced natural materials, pride in craftsmanship, and emulation of medieval design. Common characteristics include doorways and windows dressed with stone and brick; projecting eaves; intricate joinery; leaded-glass windows and square chimneys; Gothic ornaments and Tudor half-timbering
More Photos

8Shingle: 1880 – 1910
Ubiquitous shingle cladding is the defining feature of the Shingle Style. These houses vary widely in composition and historical affiliation, but are still readily identifiable as Shingle style. They minimized decorative elements due to the influence of the Arts and Crafts Style and aimed for informality and rusticity. These homes are a reaction to the design excesses of the Victorian period. San Francisco has many excellent examples of the Shingle style by some the best architects of that time: Bernard Maybeck, Ernest Coxhead, Julia Morgan, Willis Polk.
More Photos

9Tudor Revival: 1890 – 1940
Evocative of country homes from medieval England, Tudor Revival houses stand out in the urban context of San Francisco. This style is based on the principles of the Arts and Crafts movement, which advocated a return to medieval building types and design. Characteristics include steeply pitched roof; decorative half-timbering; prominent cross-gables; mix of brick or stone with stucco or wood; and grouped, leaded windows with small panes.
Another Example of Tudor Revival

 
 
13Mission Revival: 1890 – 1920
All you need to do to identify a building in this style is look up. They always have a Mission-shaped parapet or window dormer, from which the name of the style derives. Although the Mission Revival style began around 1890, it did not become common until the start of the Edwardian period. San Francisco is no exception to the rule. Most of the Mission Revival homes and buildings were built after 1901.
More Examples

Craftsman_1Edwardian Craftsman: 1900 – 1930
In 1901, Gustav Stickley started a magazine called The Craftsman, for which the style is named. The magazine and some pioneering works by the Greene brothers quickly spread the style around the nation. Both Stickley and the Greene brothers were heavily influenced by the English Arts & Crafts movement. Craftsman homes tend to emphasize the horizontal, as in the bands of windows on the facades of these SF houses. Other characteristics include the use of native, natural construction materials; projecting eaves and exposed rafter ends; and casement windows, often with art glass.
Another Example

Spanish-Edwardian_1Spanish Eclectic & Revival
Spanish Revival homes look like they belong in Spain, while Spanish Colonial buildings are less refined and look like they belong in a Spanish colony. These homes freely mix elements of Spanish Revival, Spanish Colonial, and Mission Revival. Mediterranean Revival is another freely-mixed style that was popular with San Francisco builders. Thousands of Spanish Eclectic and Mediterranean Revival homes were built in the Marina District and Sunset. Characteristics include a low-pitched roof with little or no overhang; red roof tile; arches over front door and most prominent window; stucco walls; and the large bow front window over a garage.
Another Example

This link goes to architect James Dixon’s complete overview, which was the basis for this article. It features short videos on each of the different Victorian and Edwardian styles mentioned above. Also included is a link to his overview of subsequent styles of San Francisco architecture:

James Dixon on San Francisco Victorian and Edwardian Architecture

James Dixon on San Francisco Architecture 1920 to Present

And for those who find San Francisco history as interesting as we do, here are two other websites we’ve discovered filled with fascinating stories and photographs:

FoundSF: History, Stories & Images

OldSF: San Francisco Photos, 1850 – 2000