SF Rental Market: Perspective On A Strong Market

San Francisco is often touted as the number one rental market in the US. Rents here are certainly high and due to a strong Tech and Bio Tech industry, Im sure thats true. But the rent board offers us some perspective. This great rental market is not for everyone...

San Franciscos rental housing stock is still dominated by rent-controlled units. Most tenants are covered by rent control. This means rents can only be raised by certain amounts per year.Effective March 1, 2011 through February 29, 2012, the allowable annual increase amount is 0.5%.

Units cannot come up to market rate until they are vacant. So the strong numbers you see reflect units recently available and now increased to reflect the market. Many occupied units are way below market. Often, this part of the story isnt reflected when we discuss San Franciscos strong rental market.

The San Francisco Rental Market

The tech industry drives the San Francisco leasing market.The San Francisco Business Times notes that a second straight quarter of growth with commercial tenants rent a net about a half million square feet than they vacated.

The Business Times goes on to say that SOMA accounted for half the city’s growth and has a total vacancy rate of 9.5%, including sublease space. In contrast, the financial district has a vacancy rate of 16%. Im sure some of the more desirable core neighborhoods are sporting low vacancy rates and grabbing higher rent rates.

Commercial rentals aside, when you factor in the number of the under market rent controlled units that can only raise rents by small percentages the picture becomes more of a mixed bag. Ownership of buildings with large ratios of rent controlled units to market rate units sport high prices but low cash flows.

Photo courtesy of jpalllan  

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