Market Spotlight: San Francisco – Oakland

Due to a confluence of factors such as increased construction deliveries, reduced tourism and business travel, very high average rents, and a workforce more mobile than that in many areas of the country the Bay Area market in California has been especially negatively impacted from a multifamily perspective so far this year. For that reason, in this space today we’ll be taking a closer look at recent performance for the area across a variety of metrics.

All numbers will refer to conventional properties of at least 50 units.

New Supply and Average Occupancy

About 9,500 new units have been delivered in the last 12 months, up from just over 6,000 in the preceding annual period. This substantial uptick in new supply has come as annual net absorption moved from about 6,100 units two years ago to a net loss of 1,800 rented units in the last 12 months.

Three areas were especially affected on the demand front. The Los Gatos – Campbell submarket suffered a net loss of around 600 units over the last year while adding about that many new units. Santa Clara lost just less than 600 rented units as well, in a 12-month period in which more than 700 new units were delivered. Lastly, 450 net rented units were lost in the Sunnyvale – Cupertino submarket as just over 100 new units were introduced.

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The convergence of increased new supply and a collapse in demand led predictably to a decrease in average occupancy. A 4% loss brought the market average to just a hair under 90% to end July. At the end of July in both 2018 and 2019 average occupancy finished comfortably above 93%. The largest percent losses by submarket were of course in areas with fewer overall units, but some larger regions experienced some substantial losses as well.

The aforementioned Los Gatos – Campbell submarket saw average occupancy decline by 11% down to 86%. In the Financial District area of San Francisco, average occupancy fell nearly 6% to about 88%. In Downtown Oakland, a smaller submarket with just over 6,000 conventional units, a 17% average occupancy decrease was the largest loss of any submarket.

Average Effective Rent and Concessions

After annual gains of 4.4% and 3% for July 2018 and 2019 respectively, average effective rent declined by 2.6% for the San Francisco – Oakland market over the last 12 months. One major reason – a drastic increase in the availability of rent discounts. The market ended the July in the previous two years with less than 10% of conventional properties offering a concession package. This year, the month ended with 26% of properties offering. Additionally, the average value concession value doubled to almost five weeks off a 12-month lease.

One of the most expensive submarkets, Burlingame – San Mateo, average effective rent declined more than 8% which equates to $280 per month. In the Downtown San Jose region average rent fell by 5% and the Redwood City – Menlo Park area suffered a 6% annual loss. Three submarkets finished July with at least half of conventional properties offering a lease discount – Bayview – India Basin, Downtown San Jose and North Oakland.

Quick Hits

  • Average net rent per unit, which accounts for both occupancy and rent, fell by 6.5% for the Bay Area over the last 12 months.
  • Properties that were already stabilized as of 12 months ago shed more than 5,000 net rented units over the last year with an average effective rent loss of 3.1%.
  • Class A properties lost 1,500 net rented units, and combined with new supply, average occupancy fell almost 15% for this subset of properties.
  • Class B properties were the only price tier of four to have positive annual demand.


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