San Francisco mid-2023 apartment market outlook

San Francisco mid-2023 apartment market outlook

More than 4,000 new apartment units are expected come online in San Francisco this year. What will that construction influx and economic uncertainty mean for the local multifamily market? Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take, citing data from Moody's Analytics CRE.

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Rents drop, vacancies rise in San Francisco’s multifamily market

Rent growth for San Francisco apartments turned negative in Q1 2023, with asking and effective rent levels declining 0.6% and 0.8%, respectively. This was a bit disappointing, given how rent growth was finally on the upswing after weaker performance in 2021 and 2022, Calanog says.

Vacancies in San Francisco also weakened, rising 30 basis points to end the first quarter at 4.7%. San Francisco’s vacancy levels still haven’t regained their pre-COVID lows in the low 4% range and now they appear to be on the rise. 

Record new supply, economic uncertainty pose challenges 

Calanog says one looming issue is new construction: Moody’s forecasts over 4,000 new units will come online in San Francisco this year. That would set a new annual record for deliveries, about 500 units more than the prior record from 2016. 

Combine the new supply with continuing volatility and the high — and likely increasing — probability of a recession, and we have a bad combination for real estate: a pullback in demand amid a supply overhang.

South of Market submarket could struggle

Nuance, as always, is necessary. The South of Market submarket is leading the way in projected new construction deliveries, with 1,500 new units forecasted in the area — about one-third of the total for the metro.

Demographic trends support strong rental housing demand for the next five to 10 years, but the coming 12 to 18 months might be particularly rocky for the San Francisco apartment market.

By the editorial team at Story by J.P. Morgan

What’s the multifamily outlook in other U.S. metro markets? Watch our mid-2023 analyses for more cities across the country. 

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