As we roll in to the final quarter of an unforgettable 2020, the inventory of active listings is starting to tick up, yet the number of sales and the percentage of listings selling are well down since the pandemic struck. It is undoubtedly a challenging time for landlords as I don't think we've seen the bottom of this yet as it relates to vacancy rates.

As expected, rents are down for a seventh straight month in San Francisco. The median price of a one-bedroom last month was $2,830: a 20% decrease from September 2019 (and down from close to $3700 at the peak in 2015). Not only is this drop among the largest yearly decrease ever, it is also the first time the median price of a one-bedroom in San Francisco was priced below $3,000. It is also a 7% price drop from August. The two-bedroom median price dropped 7% as well, to $3,800. Landlords (mainly large and institutional) are aggressively competing for tenants by offering various incentives. The current king of concessions is Related California with their drive to put tenants into The Avery (450 Folsom), The Paramount (680 Mission) or Fifteen Fifty (1550 Mission). Their offer; three months free rent when you sign a one year lease.

Oakland was hanging tough and performing better than San Francisco in the early COVID months, but rents (in Oakland) are now dropping as well. The average asking rent for an apartment in Oakland just dropped to under $2,500 a month (versus nearly $3,000 a month at peak), which is down nearly 6% over the past month.

San Mateo has the most expensive rents of the largest cities in the Bay Area, with a two-bedroom median price of $3,007. Overall, San Mateo rents fell 3.7% over the past month and 11.9% over the past year.

Ground Floor Commercial

For those of you with ground floor commercial space, I know you are most likely working with your tenants to reach an outcome that keeps them in business (and you continuing to receive cash flow). I'm sure you know Gavin made an extension of his Executive Order which will allow local jurisdictions in California to continue banning the eviction of commercial tenants impacted by the COVID-19 pandemic through March 31 of next year (2021). Locally, Mayor Breed authorized a modified 60-day extension of San Francisco’s commercial eviction moratorium through (at least) November 30 of 2020. So, San Francisco’s commercial eviction moratorium now applies to rents that were due from March 17, 2020 through November 30, 2020. And while the moratorium does not waive a commercial tenant’s obligation to pay any and all past-due rents once the moratorium expires, it prohibits most rent-based evictions during the moratorium period. On a positive note; landlords of buildings with less than 25,000 square feet of rentable space can seek a waiver from the moratorium. How? The landlord needs to “demonstrate that being unable to evict would create a significant financial hardship (for example, default on debt or similar enforceable obligation).” Also, the extended moratorium does not apply to tenants which are formula retailers.

Office Rents

Vacancy rates for San Francisco office space continues to climb as well. The vacancy rate shot up to 14% at the end of September (a height it hasn’t seen since 2011). The city’s vacancy rate, including both standard and sublease listings, was up from almost 10% last quarter and 5% from a year ago. The sublease vacancy rate was 7.4%, accounting for the majority of the overall vacancy for the first time, with companies like Credit Karma, Dropbox and Twitter listing available space. The big question; if and when do large employers let their employees come back to work in the office (if there is an environment that resembles pre-COVID size and scale)?

Local Politics

In more sad local legislative news (that hopefully never see's the light of day), Peskin is working on legislation that would extend collective bargaining rights to tenants associations and organizations. Yes. You read that correctly. If passed, any group of tenants can organize and have collective bargaining rights as they “negotiate” rent reductions, living conditions, increased services, etc. with their landlords. After that, I suspect we’d create a law that would allow the group of tenants to unionize? I know of no jurisdiction in the County that allows this (including NYC). Of course, San Francisco wants to be first.

On to the numbers.