San Francisco Effective Rent Growth Rebounds

Contributed by Ron Johnsey, June 27, 2013

San Francisco was previously featured in Axiometrics’ February 2013 Apartment Market Trends Newsletter highlighting the significant drop in effective rent growth across all asset classes. It appeared that the bulge in the level of rent from the summer of 2012 was not sustainable; however, rents started growing again as the market headed into prime leasing season this year.

13 SF Annual Effective Rent Growth

14 SF Effective Rent Levels

In February 2013, Axiometrics’ reported that San Francisco Class A properties had negative annual effective rent growth (-2.5%) with 812 units being delivered in the first quarter. By the end of the second quarter, a total of 1,078 units will be delivered. Despite concerns of new supply causing a decrease in rent growth, rent growth in Class A properties is bouncing back and new supply has been absorbing very well at the rate of 29 units per property per month since January 2013. The level of effective rent for Class A product in San Francisco reached an all-time high of $3,575 in May 2013 and annual effective rent growth increased to a 4.75% pace.

The level of rent for Class C properties seems to have reached a plateau and has only been able to push rents 2.0% YTD ending in May 2013 compared to 10.1% during the same period in 2012. Although rent growth for Class C properties has been flattening since September 2012, there is still potential for a mid-summer bump in the level of rent due to seasonality. This could also be due to increased rents at lower-tier Class B properties causing renters to downgrade to higher-tier Class C properties; therefore causing a surge in occupancy and an increase in rents. The national level of rent for Class A properties is $1,479, which is $354 less than the level of rent for Class C product in San Francisco of $1,833. As seen in the chart below, San Francisco’s Class C properties level of rent is still two and a half times the level of rent for Class C properties.

15 SF vs National Effective Rents