San Francisco Housing Market Surprises
Even as technology companies drive commercial real estate leasing in San Francisco, unprecedented demand from tech workers is compelling the for-sale condominium market.
Forty percent of the new-condo buyers that his company is seeing are employed by the technology industry, said Alan Mark of The Mark Co. Traditionally those in the financial sector represented the largest class of purchasers. “This is the first time in 15 years where technology is No. 1,” he said. “It scares me a little that it is all in one sector. But attorneys aren’t getting jobs.”
Indeed, there is much about the San Francisco housing market that is unexpected right now, concluded an Urban Land Institute panel of apartment and condominium developers.
Moderated by San Francisco developer Eric Tao, the 90-minute question-and-answer was intended as a market update on San Francisco’s housing sector. It is the first in a series about market conditions to be sponsored by ULI this year. The second quarter update is expected to focus on the office market.
Heady San Francisco apartment rents have reduced the financial benefit of renting over homeownership, Mark said, and the inventory of for-sale condos both new and existing is very low. Yet condo developers are not producing inventory.
The Mark Company advises for-sale housing developers including on design, marketing and sales including industry research.
At the height of the late-great housing boom as 2007 closed, condo developers were offering 3,000 units for sale in the city. Since then, the number of available units has fallen in a nearly straight line. Today that figure is 212—and more than half, 108, are already under contract to sell. Fewer than 400 condominiums are under construction today, according to Mark company data, even though nearly 5,000 more condominiums have been approved.
Yet, the city’s construction pipeline is made up almost entirely of apartments—3,700 in all are under construction today—and San Francisco apartment rents have been flat for three quarters.
That condo developers have not stepped up to increase production in the city has surprised him, said John “Jack” Robertson, vice president of development for the Bay Area Division of Lennar Urban. “In the last couple of years as construction starts for condo projects slowed due to the economy, virtually no one jumped in,” he said.
Bosa Development is an exception at the Madrone Mission Bay, he said. They “took the risk and seemed to have hit a home run.” The 329-unit development, which began construction in February 2011, has sold out.
Lennar Urban is the development force behind San Francisco’s Shipyard and Candlestick Point on the city’s southeast bay waterfront. The redevelopment, including the demolition of the football stadium, contemplates 12,000 new homes, 3.15 million square feet of office and research and development space, nearly a million square feet of retail, a hotel and community facilities.
Lennar is taking offers now from developers for the first lots, Robertson said. It will be up to each of them to decide whether to build rental or for-sale housing. “We really regret not begin able to start construction 24 months ago at either of these master-planned communities when we would have been entering a market with no inventory to compete against,” he said.
The for-sale housing market in San Francisco recovered “like a boomerang,” said Rick Holliday of Oakland’s Holliday Development. Two years ago, it was not strong, with the exception of select neighborhoods, he said. Since then, it has “snapped back like a rubber band,” surprising him with its speed.