San Francisco Multifamily Market Analysis - July 2023

The pace of growth in the San Francisco multifamily market has shown a notable slowdown, continuing the trend observed in the modest 2022 performance that concluded with a 4.2 percent increase.

Notably, rents experienced a marginal decline of 0.1 percent over the trailing three months until May, settling at an average of $2,784. In contrast, the broader U.S. market saw an upward trajectory in rental rates during the same period.

Examining the broader timeline, rents in San Francisco exhibited a year-over-year decrease of 0.4 percent. This places San Francisco among the group of eight prominent U.S. markets that witnessed a decline in rental rates in the twelve months leading to April.

Despite the downward pressure on rents, the occupancy rate remains a focal point, underscoring the persistent demand for increased housing availability in the metro. The occupancy rate experienced a modest decline of 20 basis points over the course of a year, reaching 95.3 percent in April. Notably, this figure outpaces the national average, highlighting the ongoing need for more housing options in the region.

Analyzing the labor market, preliminary data from the Bureau of Labor Statistics reveals that as of April, the metro's unemployment rate stood at 3.1 percent. While still lower than both the national rate of 3.4 percent and California's rate of 4.5 percent, this marks an increase from the previous year.

Also Read: Net Lease Cap Rates See Fifth Consecutive Quarterly Increase

The uptick in unemployment is attributed to tech industry layoffs and restrained economic expansions, impacting the broader Bay Area. Over the one-year period ending in March, employment exhibited a growth of 3.1 percent, which translated to the addition of 61,100 jobs. Notably, the leisure and hospitality sector emerged as a top performer, expanding by an impressive 9.0 percent, equivalent to 24,700 positions.

In terms of housing supply, data up to May indicates that developers introduced 1,420 new units to the market in the current year. This represents a modest expansion of the housing stock by 0.5 percent. However, this growth rate falls short of the figure registered during the same period in the preceding year, painting a picture of decreased development activity. Simultaneously, investment activity in the multifamily market also experienced a decline, with a total of $770 million recorded during the initial five months of 2023.

As the multifamily market in San Francisco navigates these dynamics, it remains an area of keen interest, not only for real estate professionals and investors but also for policymakers concerned with housing affordability and economic resilience in the region.

As the multifamily sector faces these shifts, it is crucial to employ strategies that optimize processes and enhance efficiency. In this regard, partnering with Gallagher & Mohan as a Real Estate Knowledge Process Outsourcing (KPO) provider can be a strategic move. We bring expertise in multifamily underwriting, financial analysis, and accounting services, offering valuable support to navigate the complexities of the market. Our comprehensive suite of services can aid in making informed decisions, improving operational performance, and maintaining financial accuracy.

In a market where adaptability and informed decision-making are pivotal, Gallagher & Mohan's role as a KPO partner can be instrumental in maximizing opportunities, mitigating risks, and achieving sustainable growth in the multifamily sector. As San Francisco's real estate landscape evolves, such strategic collaborations become essential for maintaining a competitive edge and achieving long-term success.

Source: Yardi Matrix Report