April 2021: Q1 San Francisco Apartment Insider
I hope this email finds you well and optimistic as we close out the first quarter of 2021. Good news; San Francisco’s median apartment rent rose 3.4% in March from the prior month, the biggest increase since the pandemic began. The median San Francisco one-bedroom is $2,082 per month and the median two-bedroom is $2,410 per month. While this is definitely a positive trend, rents still remain down over 23% from the prior year and inventory remains high, and it's still very much a tenant's market. Ironically, San Francisco still remains the most expensive rental market in the nation.
Will rents return to pre-pandemic levels anytime soon? It’s highly doubtful. I anticipate a steady improvement in the rental market over the next 12 months but don't anticipate rents returning to pre-Covid levels for a few years. The rental market has bottomed out and rents will gradually increase in line with the reopening of the City. When we see increased vaccinations, reopening of retail, hospitality, sporting events and the arts, we will see migration back into the city. Further, return of remote employees to local offices will drive demand for rentals (see below for more info). Two Bay Area tech giants are preparing to reopen their offices for the first time since the start of the pandemic. Facebook confirmed Friday it will start bringing employees back to the San Francisco office on June 7. Uber told the San Francisco Chronicle that it opened its new S.F. headquarters in Mission Bay on March 29th at 20% capacity. Let’s hope we hear about more office re-openings as this is the key to driving up demand for rentals.
On the office space front, things are grim. In the beginning of 2020, the office vacancy rate hovered around 4%, but has since more than quadrupled to 19.7% at the end of March 2021 (according to CBRE). That makes a total of 16.3 million square feet vacant in the city, with over half of the space vacant subleases. Typically, there’s about 1 million square feet of subleasing space on the San Francisco market at any given time, but as the pandemic drags on, companies stuck in leases are trying to recoup some of their losses. With an additional 1.5 million square feet of sublease space added in Q1, there’s now a total of 9.5 million square feet on the market. Subleases account for 45% of all available office space.
Several large employers have sent strong messages about downsizing. Examples are:
Pinterest paid $89.5 million to terminate its lease for 88 Bluxome, a high-rise complex to be constructed near the company's existing San Francisco headquarters.
Twitter listed 104,850 square feet of its 1 10th Street building for sublease in last fall.
Yelp has its 161,876-square-foot office space at 140 New Montgomery Street up for rent.
WeWork is closing five downtown locations.
Old Navy announced it would be shutting down its Mission Bay offices (and moving into parent company Gap Inc.’s workspace).
San Francisco’s largest private employer, Salesforce canceled its 325,000-square-foot lease at the un-built Parcel F Tower in San Francisco’s Transbay neighborhood. It is also subleasing part of its offices at 350 Mission Street.
Large employers have been lobbying the Federal Government for a year on (employer) liability protections as it relates to getting the workforce back to the office. Unfortunately, this has not happened and may play a large role in employees not returning to the office en masse (and creating demand for rental units).
On to the numbers. Keep in mind ‘Q1 calculations should be considered very preliminary indicators until they are substantiated over the longer term with a higher number of sales in the analysis.
