Apartment market report – San Francisco is booming

A healthy housing market is characterized by low vacancy rates, low foreclosure inventory, and strong job growth. All three exist in San Francisco, making it one of the booming cities of the US.

The economy in the past 12 months shows payrolls expanded by 3.2 percent. 30,700 positions were added by employers throughout the year of 2012 in the professional and business sector. The leisure and hospitality segment has made available more than 6000 new jobs to help the rising hotel occupancy, a rate which this year placed San Francisco on the second position in the nation.

Vacancy in 2012 was down 10 basis points from the rate at the end of 2011, finishing at 3.2 percent. The main reason behind the drop was the expansion of the industry of technology. The Class A vacancy dropped to 3.9 percent while the Class B/C vacancy retreated to 2.4 percent.

As little as 410 market–rate apartments have been added to the city’s single-family homes because of the limited availability of the land and of the challenges in getting approvals for new developments. The permitting activity shows a drop of 11 percent, an indicative that the building activity can begin to ease in the next cycle. Still, over 4000 apartments are under construction with 2100 units expected to be finalized this year, the rest being scheduled for 2014.

The asking rent increased by 6.2 percent over the past year to $1971 per month, while the effective rent moved up with 6.8 percent during the same period to $1890 per month. Class A renters paid $2360 per month last year, much over the monthly rate of $1645 the Class B/C renters paid.

Currently the most affordable submarket appears to be North Marin with an effective rent of $1489 and a vacancy rate of 1.6 percent, followed closely by the Civic Center/Downtown at $1533 per month and 3.9 percent vacancy rate. At the opposite end is Russian Hill at $2534 per month and 2.5 vacancy rate and Marina/Pacific Heights at the monthly rate of $2255 with 2.2 percent vacancy.

Although the difference between the sales and rental market has narrowed, 2013 doesn’t announce any big changes in status of ownership. The big down payments and scarce financial options will keep most of the San Franciscans in the renter segment.