Commercial Real Estate News / Investing / 2022 Multifamily Market Report: San Francisco

2022 Multifamily Market Report: San Francisco

Published: 05-31-22 Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

San Francisco has experienced significant changes related to the COVID-19 pandemic.

The major technology companies that operate there have had differing policies about remote working and going to the office which has changed where people live and work.

Some people now work for San Francisco-based companies in other states.

Despite some people migrating away from the expensive city, vacancy rates remain low and the job market is growing higher than the national average.

Plus, rents have grown slower than the rest of the country.

For multifamily real estate investors, San Francisco presents a balance of opportunity and long-term stability.

People want to live in the San Francisco area. Companies and investors that own multifamily units have an inherent long-term advantage, as detailed in this report.

San Francisco Multifamily Highlights

This San Francisco multifamily market report highlights some of the impacts of the COVID-19 pandemic on the multifamily market in the San Francisco area.

Some notable statistics include:

Multifamily occupancy rate in San Francisco rose 2% to 94.6% from November 2020 to November 2021;
Job market expanded by 5% in October 2021;
San Francisco rents rose by 0.1% to $2,647 a month.

The increased prevalence of remote working has changed the job market and the rental market in San Francisco.

These changes are unlikely to be temporary. Investors must adjust and pivot their investments accordingly.

The Pacing of Multifamily Rents in San Francisco

Nationally, rents rose by 11.3% in 2021. Rents also rose considerably in San Francisco. For a one-bedroom apartment, data shows that costs rose in:

San Francisco County from $2,561 in 2019 to $2,923 in 2021.

San Francisco has long been an expensive city to rent an apartment in.

It is one of the most expensive places in the United States.

Long-Term Changes in Rent

Many people moved away from San Francisco to other, less expensive areas as remote working became extremely common.

In other areas, people can leverage a lower cost of living without having to pay as much as it costs to live in the Bay area.

However, this will not last forever, as other small cities experience record inflation.

The job market in San Francisco is thriving despite the increase in remote work.

After a relatively slow period of time, jobs have been growing here.

Short-Term Changes in Rent

Despite people moving away from cities, the occupancy rate in San Francisco remains extremely high.

While rents are not growing at the rate of job growth, there are still many people renting apartments in the city.

Multifamily Sales in San Francisco

Multifamily sales have not been as prevalent in 2022 in San Francisco as in past years. However, there have been a few notable acquisitions and sales in the city.

Notable Acquisitions So Far

In late 2021 and early 2022, Ridge Capital spent $189.5 million to acquire four properties.

Two properties, Walnut Creek and an apartment complex in Dixon were purchased by Ridge Capital.

The other two properties, Gateway Apartments and Austin Commons were purchased through a joint agreement with Andel Holdings and Contrarian Capital Management.

Notable Sales So Far

In late 2021, the owner of the Saks Fifth Avenue store in Union Square sold the store to a joint venture between Lincoln Property Co. and Cara Investment.

Cara and Lincoln have worked together to acquire properties on at least two previous projects.

In 2022, Equity Residential sold Wood Creek Apartments for $304 million.

The purchase was made by Opportunity Housing Group and the California Statewide Communities Development Authority.

Market Forecast for the Rest of 2022

The San Francisco multifamily market will likely remain very active.

Most current predictions assume a continuation of the trends seen so far in San Francisco during 2022, with increased unemployment and slowing job growth being trend breakers.

However, the added stress of the recent pandemic and climate change causes uncertainty.

If the pandemic continues to hinder in-person working, this could have an adverse impact on expensive cities where large corporations operate.

The economy in San Francisco is strong. The unemployment rate in San Francisco dropped to 3.8%, which is much better than the state and national average.

Multifamily developers finished 8,425 units in 2021, which was an all-time high. There is another 22,175 units under construction this year.

General Investor Activity: Where is the most money flowing?

There have been a number of large investment funds that have entered the rental market in San Francisco.

The San Francisco Multifamily market is seeing more demand from high-income homebuyers.

Investors are purchasing huge amounts of multifamily buildings in San Francisco that are already well-maintained but could be improved.

Takeaways for Multifamily Investors

The San Francisco multifamily market has experienced a lot of changes in the last year or so. In 2021, the job market was still booming, but the pace of growth began to slow down.

Investors need to be able to adapt to challenges, such as COVID-19 and climate change.

San Francisco is still a difficult market to enter. Apartment sales have been very slow so far. The city is facing pressure from new construction.

Many people are moving out of the city and into smaller cities to find apartments at a reasonable rent. The long-term trends are positive, but some investors will face challenges in the short term.

The San Francisco multifamily market is very busy and dynamic.

The city has a very strong job market, with extremely high occupancy rates in the second half of 2021. However, investment demand has slowed considerably this year.

Additionally, more people are working remotely, which is forcing many people to cut back on their living expenses.

The office and apartment markets in San Francisco have not declined as much as they have in other cities across the country.