San Francisco Multifamily Rents Poised to Grow 9.5% This Year
With many of the city’s largest employers back in the office, the multifamily market is rapidly recovering.
The San Francisco multifamily market is poised for broad recovery, according to data from Marcus & Millichap. At the start of the second quarter, several of the city’s largest employers returned to the office, either part-time or full-time, helping to catalyze the multifamily recovery. As a result, Marcus & Millichap expects multifamily rents to grow 9.5% this year, exceeding the 9.1% rent growth in 2021 and putting the average monthly rent above $3,000 for the first time.
In the second quarter two dozen major companies have returned to the office in the city, and Facebook and Google returned to the office in April. While not all of these companies are returning to the office full-time, the report notes that even part-time office usage will drive demand for apartments in the city.
The apartment vacancy rate is a good indicator of activity. The market entered 2022 with a 7.2% vacancy in the CBD after falling 520 basis points in 2021. This year, Marcus & Millichap expects the vacancy rate to fall another 60 basis points with renters absorbing about 4,400 units. This would close the year with a vacancy rate of 6.3%, still about 100 basis points above the 2019 year-end vacancy.
A limited new construction pipeline will help the vacancy rate compress. About 3,200 units will deliver in the market this year, 1,100 units fewer than the trailing five-year average. Not only does this bode well for overall apartment absorption, but it also will drive leasing activity in upper- and mid-tier apartment properties with significant vacancies, according to the report.
Although rents grew significantly in San Francisco last year, the market slowed at the end of the year. Along with Seattle, San Francisco apartments experienced significant month-over-month declines, according to research from Apartment List. At the time, experts said the decline could signal that tech hubs are “entering a second phase of COVID-related rental market softness.” If Marcus & Millichap’s predictions turn out to be true, along with the return to office that we have already seen this year, December was likely a temporary pause in apartment demand. Afterall, San Francisco wasn’t alone. According to Apartment List research, 61 of the top 100 metros saw a decrease in apartment rents in December.