Condo Prices in San Francisco on the Rise
- Mar 18, 2010
San Francisco—The San Francisco condo market is running out of inventory, according to Alan Mark, founder and president, The Mark Company, a San Francisco-based residential sales and marketing firm, who also predicts that there won’t be any new inventory under $1 million by the end of the year.
The median price on individual units has increased, Mark tells MHN. “Over the last year, people are coming back in the market for more expensive properties—that’s been pushing the numbers up.” He adds, “The market has strengthened and there’s a lot less inventory. We are pushing back when buyers try to negotiate [for condos], especially under three-quarters of a million.”
In addition, in early 2009, developers were more likely to move on closing costs, whereas buyers are finding this to be negligible now.
Mark predicts that there won’t be any new inventory of note until at least 2014. On the contrary, Los Angeles is still working through existing inventory, while San Diego—the first California market to hit bottom—is experiencing a strong rebound.
“Financing dried up for major projects three or four years ago, so when we looked at the skyline a year or two ago, there weren’t cranes. This year, one project opened up,” Mark says.
In the near future, Mark predicts, smaller projects of between 35 to 65 units are more likely to be financed, since they can be sold out faster than a more typical 20- to 40-story tower. And, because of the difficult entitlement process, he believes that any new construction will take place on sites that have already been entitled.
On the rental side, Mark reports that the market is experiencing vacancy rates of approximately 5.5 percent, with monthly rents declining about 8.5 percent. He notes, however, that San Francisco traditionally does not build much rental communities, though 450 new units were recently delivered in Mission Bay.
In terms of investment opportunities, San Francisco has seen a slow transaction velocity, particularly since there haven’t been many, if any, distressed sites, reports Mark. “What we hear is a lot of offers come in—there’s a lot of capital out there looking for deals but not a lot [of product] coming online.”
On the bright side, the medical and biotech industries appear to be growing in the area, and Mark notes that this comprises a large percentage of the market’s buyers. In addition, many empty nesters that are looking to purchase a condo closer to the city are holding onto their suburban houses, making it easier for deals to close.