Paragon Commercial Brokerage
 

Paragon Commercial Brokerage

The Multi-Unit Residential Property Markets
of San Francisco, Alameda & Marin Counties

Spring 2017 Report
Paragon Commercial Brokerage


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This report separates out the 2-4 unit and the 5+ unit apartment building markets in the 3 counties, since they have somewhat different dynamics and values.


Median Sales Prices & Average Dollar per Square Foot
by County and San Francisco Submarket


Annual Trends in Values:

Chart: Annual Median Price Trends, 5+ Units

Chart: Annual Median Price Trends, 2-4 Units

Chart: Annual Dollar per Square Foot Trends, 5+ Units

Chart: Annual Dollar per Square Foot Trends, 2-4 Units


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Market Sales Overviews


Chart: 2016 Sales by Price Segment, SF 5+ Units

Chart: 2016 Sales by Price Segment, SF 2-4 Units

Chart: Marin Overview, 2010-2016


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Rent Rate Statistics


According to Zillow, median list rents ticked up in early 2017 from the 4th quarter of 2016, reversing previous quarters of decline, but still well down from 1 year ago. However, the data is still too short-term to jump to any strong conclusions and we will provide updates as more data becomes available. For the past year, San Francisco rents, in particular, have been under significant downward pressure from the large surge of new apartment units coming on market, and reports from the field paint a relatively clear picture of increasing supply and some softening of demand in comparison to the frenzy of previous years.

San Francisco still has the highest median list rent in the nation, though New York has higher median rental dollar per square foot values in 2 of the 3 categories delineated in the second chart below.



Note: There are different ways of measuring average and median rents, and, frankly, none of them is definitive: They are usually based on advertised rates or relatively small samples from selected properties, as determined by different analytic firms or rental websites. Still, whoever is doing the analysis, longer-term trend lines usually tend to more or less paint similar pictures of the rental market.

This next chart looks at Weighted Average Asking Rents (another method of analysis) for Q1 of each year for a longer-term perspective. Q1 2017 estimated based on available data.


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Valuation Metrics by County & San Francisco Submarket

Cap Rates, Gross Rent Multiples & Price per Unit


Preliminary indications in San Francisco are that cap rates are starting to tick up a tiny bit, and gross rent multiples are starting to tick down a bit, albeit from peak levels reached after 5 years of extremely strong markets. Cap rates in Alameda County, for the time being, appear to still be moving lower, but yet remaining significantly higher than in the city or in Marin.


Annual Trend Overviews:

Chart: Annual Cap Rate Trends

Chart: Annual SF Gross Rent Multiple Trends


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San Francisco Market Dynamics
Annual Trends, 2010 – 2016


In each of these four statistical measurements of market heat, there is an indication of some degree of market cooling occurring in the San Francisco multi-unit markets in 2016. However, so far, the changes are generally relatively small and not wholly consistent across the different building types measured.


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Long-Term Appreciation Trends in 2 Major Areas
of San Francisco


Looking at the 2-4 unit markets in two broad sections of the city, the northern prestige neighborhoods and the highly sought-after central Noe, Eureka & Cole Valleys district, indicates continued dollar per square foot appreciation in 2016. We use the 2-4 unit markets because the greater quantity of sales makes the statistics more reliable.

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Q1 2017 Sales of San Francisco 5+ Unit
Apartment Buildings


San Francisco is a unique residential-investment market: the buildings are smaller and older than in most places, built in a wide range of architectural styles. The great majority of the market is under rent control, which makes upside rental-income potential a big component of valuation, even if it is unknown when that potential might be realized. Furthermore, the units are typically very unlike those in suburban garden-apartment complexes, and within the city the variety in buildings and units is enormous.





In real estate, the devil is always in the details: If you are interested in further insight into the details of any of the above sales, or regarding properties currently on the market, please contact me.

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Broker Performance in
Residential Multi-Unit Property Sales


According to Broker Metrics, which crunches MLS sales data, of the largest brokerages in San Francisco for multi-unit residential property sales, Paragon ranks first for highest sales volume (in both 2+ and 5+ unit sales).

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These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities: This is especially true for multi-unit properties, with the enormous range of property types, sizes, conditions, circumstances, qualities and locations. Many Alameda sales do not report cap rates, so the calculation in this report is based only upon those that did. A fair proportion of investment property sales are not reported to MLS, which sometimes limits our ability for more comprehensive data analysis. All numbers should be considered approximate.


© 2017 Paragon Commercial Brokerage
 
No one knows Bay Area investment real estate better than Paragon.
Paragon Commercial Brokerage
www.ParagonCommercialBrokerage.com/

Daniel McGue
Lic# 00656579
1700 California Street, Suite 310
San Francisco, CA 94109
Direct (415) 738-7201

danmcgue@paragon-re.com
http://www.danmcgue.com

 

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