Market View

The Good, the Bad
and the Vacant

written by Jay Greenberg

Despite increasing vacancies and declining rents, the apartment sales market remains strong.

Is anybody up for some good news during the pandemic of fear and economic destruction? We’ve all had plenty of bad news, which is reflected in my report below, but there has also been some good news in the apartment sales market. I was amazed by the mid-year sales data, which shows increases in every value indicator in a year-over-year comparison with strong transaction levels. The bad news is that vacancy rates are rising, and rents are falling. On the political front, politicians in the city and state capital continue their blitzkrieg on property owners. Buckle up as we head into the second half of 2020.

The following are 2020 second quarter statistics (January – June) for the 5-9-unit sector and the 10-plus-unit sector versus the same time period for 2017 through 2019.

5-9 Units
The average price per square foot jumped from $511 in 2017, to $572 in 2018, and $551 in 2019. In 2020, the price per square foot reached a new high of $593 at the mid-year mark. How’s that for some good news? Gross Rent Multipliers (GRM) hit their peak in 2018 and have been slowly trending back since that time. The average GRM was 18.32 times gross in 2017, 18.51 times gross in 2018, and then 15.9 times gross in 2019. In 2020, the GRM has inched upward with the average multiplier coming in at 16.02 times gross.

For the past decade, we have seen rising prices per unit every year except for 2017, when the cost per unit slipped approximately $50,000 from the previous high in 2016. The average cost per unit dropped to $454,000 in 2017 and rebounded to $506,000 in 2018, and it hovered there the following year. In 2020, the average price per unit bumped up to $518,000.

Dollar volume for the 5-9-unit sector was approximately $189 million in 2017 and $188 million in 2018, before dropping to $153 million in 2019 and $134 million in 2020. As for transactions, 2017 saw a new high with 70 sales. There were 57 closings in 2018 and 47 closings in 2019. In 2020, mid-year sales dipped again, closing the second quarter with 41 sales.

While both number of transactions and dollar volume have declined on a year-over-year comparison, these are strong indicators of activity levels occurring during the craziest of times. In addition to the activity levels, we have rising value indicators for multipliers, price per square foot, and price per unit.

10-Plus Units
The value indicators for the 10-plus-unit sector have held up pretty well since 2017. We have seen a decline in multipliers for the past few years and cost per foot and cost per unit have slowly inched upward for the same time period.

GRMs were 17.62 times gross in 2017, 18.58 times gross in 2018 (the highest in a decade), and 14.83 times gross in 2019. In 2020, GRMs bumped back up to 16.65 times gross.

The average price per foot was $550 in 2017, $602 in 2018, and $552 in 2019. In 2020, the price per square foot made a strong comeback, with the mid-year average coming in at $616. The price per unit figures follow the same pattern as price per foot with increases each year, except 2019. The average price per unit was $412,000 in 2017, $458,000 in 2018, and $432,000 in 2019. In 2020, the price per unit rebounded, with the mid-year average at $487,000. Similar to the 5-9-unit sector, all value indicators have increased on a year-over-year comparison.

The number of transactions and dollar volume figures are very impressive considering our current circumstances. There were 44 transactions by mid-year in 2017, 36 in 2018, and 27 in 2019. This year, there were 31 completed transactions as of mid-year. Dollar volume has also held up very well despite the coronavirus. Dollar volume was $343 million in 2017 and $337 million in 2018. There was a significant drop in 2019 to $226 million, and by mid-year 2020, dollar volume rebounded to $304 million.

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

In Summary
I was amazed when I saw the second quarter sales figures. I’d been expecting to see low sales figures and declines in all value indicators. Instead, we have strong transaction levels and rising value indicators. First quarter stats were strong, and we had positive momentum heading into mid-March when San Francisco slammed on the brakes and everything came to a screeching halt. The shelter-in-place mandate took effect mid-March, and in-progress apartment transactions either proceeded, renegotiated, or were cancelled. Properties that were in the marketing stage went on hold since it was no longer possible to enter units. This continued through most of May. By June, apartment offerings started re-entering the marketplace, and as of late July, we are back at it.

The process has changed, and we are doing our best to minimize entry into occupied units and navigating the situation as best as possible. My personal experience with tenants has been very positive to date. Back in April and early May, I did not attempt to access tenant-occupied units. By late May, I started feeling out the process. I have not been denied access to any units in any of the buildings I have been marketing. The first half of 2020 has outperformed most expectations and our industry can certainly enjoy this good news.

I had a couple units that vacated at the end of June and subsequently had received notice from vacating tenants at the end of May. I posted ads and rented both units very quickly in early June with minimal to no decline in rent. I received approximately 25 inquiries within a few days and noticed all inquiries were current San Francisco residents looking to upgrade into a better neighborhood and unit.

Around mid-June, postings for rental units started increasing daily and then quickly skyrocketed. The trend continues as there has been mass migration from parts of the city and from the city altogether. There were many things to love about our city and the city lifestyle. However, now residents cannot go to shows, museums, concerts, street fairs, restaurants, and nightlife—people are holed up and stir crazy.

Current vacancy rates are at all-time highs and rents continue to decline. High-end properties have been most discounted; they face rising competition from new supply and a slower leasing environment. New developments are often leased by incoming job takers, and these properties are struggling to stabilize as start-ups fold and established tech giants slow their pace of growth. Lease-up velocity in some of the market's newest properties was cut in half during the second quarter. SOMA and downtown rents have been hammered. Marginal units are unwanted. Costar is reporting current downturns as the country’s most severe. Stimulus checks and unemployment benefits may be stretching further in less expensive markets, aiding regional returns, but something unique is happening specifically in the Bay Area. Rents in virtually every other market across the country have rebounded or at least stabilized over the past few months, while rents in San Francisco continued a steady descent, even into July.

San Francisco is going to need to reinvent itself. I moved to the city approximately 30 years ago from the Midwest. I came to San Francisco for quality of life. I was attracted by a spirit in the people and the city. All great empires have crumbled, and it is not because the citizens could not control their spending habits and govern their lives successfully. Empires crumble because government cannot govern themselves. San Francisco could be one of the richest cities in the world, yet the city has squandered its fortune. Instead of paving the streets with gold, they are littered with needles and worse. Local and state politicians continue to propose and pass legislation that attacks property owners. The November election is quickly approaching, which represents one thing that has not changed: We get to vote and choose policy makers going forward.

Buckle up everyone for the second half of 2020.

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