San Francisco Real Estate Market Update: October 2018

market report

SF Unicorn IPOs

  • Five San Francisco-based tech “unicorns” are planning on going public in 2019
  • Uber, AirBNB, Stripe, Pinterest, and Lyft
  • Once they have their IPOs, their employees will likely take their cash windfalls and purchase homes in and around San Francisco, driving sales prices even higher

The Beige Book

  • More strong economic news came from the Federal Reserve Bank’s September Beige Book economic report which shows continuing strong job and wage growth in the San Francisco region
  • It notes that the real estate market activity has continued to expand, in spite of higher interest rates, and the low inventory coupled with strong demand pushed prices and rents higher

Measure of CEO Confidence

  • The Conference Board’s Measure of CEO Confidence, which had slipped in the second quarter, declined again in the third quarter
  • This report is a window into planned capital spending, expansion and hiring, all of which can have a significant impact on jobs and hence home-purchasing demand
  • Yet it may not reflect the more bullish, expansionary tech sector dominating San Francisco’s economy

Napa Valley Real Estate Report October 2018

Napa County’s own economic forecast projects a 3.5% annual population increase through 2022. This means that housing needs are increasing every year, and yet the number of new housing units has grown by less than 1% annually for the past 9 years.

So, the sales price appreciation we have experienced in the City of Napa over the past three years is due in large part to demand outstripping supply.

Single family home prices have risen 5.1% over the past three years while condo/townhomes have risen 5.2%.

Buying property in Napa continues to be a very smart long term investment and personal wealth building opportunity.

Single Family Homes:
The three-month rolling average median sales price of $710,667 is up 3.1% over last year’s.

Year-to-date, new listings are up 1.4% while sales are down 3.1%.

September’s inventory of 3.4 months is 42% higher than last year’s.

The median percent of list price received was 96%.

Condo/Townhomes:
The three-month rolling average median sales price of $531,000 is up 27% over last year’s.

Year-to-date, new listings are down 8.9% while sales are down 1.1%.

September’s inventory of 1.6 months is 20% lower than in 2017.

The median percent of list price received was 98%.

Napa Valley Real Estate Report September 2018

The Conference Board is sounding a cautionary tone in its economic forecast: “Less support from monetary and fiscal policy, and a weaker global economy will gradually slow the economy to below 2.5 percent growth by the end of 2019. Already, higher interest rates along with labor shortages in construction, and higher materials costs, have led to a cooler housing market.”

In Napa, year-to-date sales of both single family homes and Condo/townhomes are down, just slightly at 2.4% for homes but more significantly at 9.2% for condo/townhomes.

Inventory remains very low for both homes and condos which is keeping it a sellers market.

Single Family Homes:
The three-month rolling average median sales price of $733,333 is up 3.8% over last year’s.

Year-to-date, new listings are down 3.2% while sales are up 2.5%.

August’s inventory of 2.4 months is 7.7% higher than in 2017.

The median percent of list price received was 98%.

Condominium/Townhomes:
The three-month rolling average median sales price of $501,000 is up 16% over last year’s.

Year-to-date, new listings are down 2.5% while sales are down 3%.

August’s inventory of 1.7 months is 22% higher than in 2017.

The median percent of list price received was 96%.

Southern/Central Marin County Real Estate Report September 2018

investsfkw

The Conference Board is sounding a cautionary tone in its economic forecast: “Less support from monetary and fiscal policy, and a weaker global economy will gradually slow the economy to below 2.5 percent growth by the end of 2019. Already, higher interest rates along with labor shortages in construction, and higher materials costs, have led to a cooler housing market.”

In Marin, there are two signs that buyers are tiring of limited choices and consistently rising prices. August’s single family home sales price, $1,293,000, was the lowest in five months. August’s condo sold price was virtually unchanged from July’s but down from June’s. And, sales are down 3.6% year-to-date for homes and 11.3% for condos.

Inventory remains very low for both homes and condos which is keeping it a sellers market.

Single Family Homes:
The three-month rolling average median sales price of $1,350,333 is up 8.9% over last year’s.

Year-to-date, new listings are down 31% while sales are down 10%.

August’s inventory of 1.6 months is 18% higher than in 2017.

The median percent of list price received was 98%.

Condo/Townhomes:
The three-month rolling average median sales price of $786,000 is up 20% over last year’s.

Year-to-date, new listings are down 22% while sales are down 28%.

August’s inventory of 1.4 months is 31% higher than in 2017.

The median percent of list price received was 99%.

San Francisco Retail Market

San Francisco’s Vacancy Increases to 2.9%
Net Absorption Negative (118,930) SF in the Quarter

The San Francisco retail market did not experience much change in market conditions in the second quarter 2018. The vacancy rate went from 2.8% in the previous quarter to 2.9% in the current quarter. Net absorption was negative (118,930) square feet, and vacant sublease space increased by 5,138 square feet. Quoted rental rates decreased from first quarter 2018 levels, ending at $39.63 per square foot per year. A total of 4 retail buildings with 19,186 square feet of retail space were delivered to the market in the quarter, with 170,198 square feet still under construction at the end of the quarter.

Net Absorption

Retail net absorption was slightly negative in San Francisco second quarter 2018, with negative (118,930) square feet absorbed in the quarter. In first quarter 2018, net absorption was negative (131,501) square feet, while in fourth quarter 2017, absorption came in at positive 52,959 square feet. In
third quarter 2017, negative (37,407) square feet was absorbed in the market.

Tenants moving out of large blocks of space in 2018 include: ToysRUs moving out of 42,787 square feet at 200 Walnut St; Foods Co moving out of 33,400 square feet at Redwood Plaza; and Ross Dress For Less moving out of 30,002
square feet at 311 Gellert Blvd.

Tenants moving into large blocks of space in 2018 include: MINI of San Francisco moving into 45,000 square feet at 799 Van Ness Ave; Office Depot moving into 30,978 square feet at Gateway 101 Shopping Center – Office Depot; and Total Wine moving into 27,000 square feet at 2230 Bridgepointe Pky.

Vacancy

San Francisco’s retail vacancy rate increased in the second quarter 2018, ending the quarter at 2.9%. Over the past four quarters, the market has seen an overall increase in the vacancy rate, with the rate going from 2.6% in the third quarter 2017, to 2.6% at the end of the fourth quarter 2017, 2.8% at the end of the first quarter 2018, to 2.9% in the current quarter.

The amount of vacant sublease space in the San Francisco market has trended up over the past four quarters. At the end of the third quarter 2017, there were 42,276 square feet of vacant sublease space. Currently, there are 78,077 square feet vacant in the market.

Largest Lease Signings

The largest lease signings occurring in 2018 included: the 45,000-square-foot-lease signed by MINI of San Francisco at 799 Van Ness Ave; the 30,978-square-foot-deal signed by Office Depot at Gateway 101 Shopping Center; and the 13,830-square-foot-lease signed by LaLanne Fitness at 1245 Howard St.

Rental Rates

Average quoted asking rental rates in the San Francisco retail market are down over previous quarter levels, and up from their levels four quarters ago. Quoted rents ended the second quarter 2018 at $39.63 per square foot per year. That compares to $40.23 per square foot in the first quarter 2018, and $38.58 per square foot at the end of the third quarter 2017. This represents a 1.5% decrease in rental rates in the current quarter, and a 2.65% increase from four quarters ago.

Inventory & Construction

During the second quarter 2018, four buildings totaling 19,186 square feet were completed in the San Francisco retail market. Over the past four quarters, a total of 116,725 square feet of retail space has been built in San Francisco. In addition to the current quarter, two buildings with 97,539 square feet were completed in first quarter 2018, nothing completed in fourth quarter 2017, and nothing completed in third quarter 2017.

There were 170,198 square feet of retail space under construction at the end of the second quarter 2018.

Some of the notable 2018 deliveries include: Artists Studio at Pier 70, an 89,000-square-foot facility that delivered in first quarter 2018 and is now 100% occupied, and 644 Laurel St, a 12,204-square-foot building that delivered in second quarter 2018 and is now 100% occupied.

Total retail inventory in the San Francisco market area
amounted to 81,661,444 square feet in 10,492 buildings and
269 centers as of the end of the second quarter 2018.

Shopping Center

The Shopping Center market in San Francisco currently consists of 254 projects with 9,709,891 square feet of retail space in 460 buildings. In this report the Shopping Center market is comprised of all Community Center, Neighborhood Center, and Strip Centers.

After absorbing (56,479) square feet and delivering no new space in the current quarter, the Shopping Center sector saw the vacancy rate go from 2.9% at the end of the first quarter 2018 to 3.5% this quarter.

Over the past four quarters, the Shopping Center vacancy rate has gone from 2.6% at the end of the third quarter 2017, remained the same at 2.6% at the end of the fourth quarter 2017, to 2.9% at the end of the first quarter 2018, and finally to 3.5% at the end of the current quarter.

Rental rates ended the second quarter 2018 at $36.27 per square foot, up from the $35.45 they were at the end of first quarter 2018. Rental rates have trended up over the past year, going from $32.77 per square foot a year ago to their current levels.

Net absorption in the Shopping Center sector has totaled (143,069) square feet over the past four quarters. In addition to the negative (56,479) square feet absorbed this quarter, negative (33,690) square feet was absorbed in the first quarter 2018, negative (1,016) square feet was absorbed in the fourth
quarter 2017, and negative (51,884) square feet was absorbed in the third quarter 2017.

Power Centers

The Power Center average vacancy rate was 7.5% in the second quarter 2018. With negative (24,144) square feet of net absorption and no new deliveries, the vacancy rate went from 6.5% at the end of last quarter to 7.5% at the end of the second quarter.

In the first quarter 2018, Power Centers absorbed negative (22,288) square feet, delivered no new space, and the vacancy rate went from 5.5% to 6.5% over the course of the quarter. Rental started the quarter at $43.85 per square foot and ended the quarter at $55.08 per square foot.

A year ago, in second quarter 2017, the vacancy rate was 5.8%. Over the past four quarters, Power Centers have absorbed a cumulative (40,052) square feet of space and delivered cumulative 0 square feet of space. There was no
sublease space over that same period, and rental rates have gone from $56.15 to $54.00.

At the end of the second quarter 2018, there was no space under construction in the San Francisco market. The total stock of Power Center space in San Francisco currently sits at 2,374,116 square feet in 6 centers comprised of 50 buildings.

General Retail Properties

The General Retail sector of the market, which includes all freestanding retail buildings, except those contained within a center, reported a vacancy rate of 2.9% at the end of second quarter 2018. There was a total of 1,824,484 square feet vacant at that time. The General Retail sector in San Francisco currently has average rental rates of $40.54 per square foot per year. There are 165,710 square feet of space under construction in this sector, with 19,186 square feet having been completed in the second quarter. In all, there are a total of 9,941 buildings with 63,757,780 square feet of General Retail space in San Francisco.

Specialty Centers

There are currently 4 Specialty Centers in the San Francisco market, making up 1,062,090 square feet of retail space. In this report the Specialty Center market is comprised of Outlet Center, Airport Retail and Theme/Festival Centers.

Specialty Centers in the San Francisco market have experienced negative (1,107) square feet of net absorption in 2018. The vacancy rate currently stands at 2.3%, and rental rates are negotiable.

Malls

Malls recorded net absorption of 0 square feet in the second quarter 2018. This net absorption number, combined with no new space that was built in the quarter, caused the vacancy rate to remain the same at 0.2% at the end of the second quarter 2018 compared to the previous quarter. In this report the Mall market is comprised of 5 Lifestyle Center, Regional Mall and Super Regional Malls.

Sales Activity

Tallying retail building sales of 15,000 square feet or larger, San Francisco retail sales figures fell during the first quarter 2018 in terms of dollar volume compared to the fourth quarter of 2017.

In the first quarter, two retail transactions closed with a total volume of $60,175,000. The two buildings totaled 99,622 square feet and the average price per square foot equated to $604.03 per square foot. That compares to eight transactions totaling $188,143,000 in the fourth quarter 2017. The total
square footage in the fourth quarter was 434,653 square feet for an average price per square foot of $432.86.

Total retail center sales activity in 2018 was down compared to 2017. In the first three months of 2018, the market saw two retail sales transactions with a total volume of $60,175,000. The price per square foot averaged $604.03. In the same first three months of 2017, the market posted three transactions
with a total volume of $278,567,000. The price per square foot averaged $875.17.

Cap rates have been lower in 2018, averaging 4.30% compared to the same period in 2017 when they averaged 4.40%.

One of the largest transactions that has occurred within the last four quarters in the San Francisco market is the sale of Bridgepointe Shopping Center in San Mateo. This 227,644-square-foot power center sold for $125,000,000, or $549.10 per square foot. The property sold on 11/14/2017.

San Francisco Office Market

San Francisco’s Vacancy Decreases to 6.1%
Net Absorption Positive 1,985,062 SF in the Quarter

The San Francisco Office market ended the second quarter 2018 with a vacancy rate of 6.1%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,985,062 square feet in the second quarter. Vacant sublease space increased in the quarter, ending the quarter at 1,517,292 square feet. Rental rates ended the second quarter at $59.50, a decrease over the previous quarter.

A total of five buildings delivered to the market in the quarter totaling 1,046,864 square feet, with 8,556,556 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall San Francisco office market was positive 1,985,062 square feet in the second quarter 2018. That compares to positive 1,719,501 square feet in the first quarter 2018, positive 422,554 square feet in the fourth quarter 2017, and negative (146,217) square feet in the third
quarter 2017.

Tenants moving out of large blocks of space in 2018 include: California Casualty Management Co. moving out of 92,989 square feet at 1900 Alameda De Las Pulgas; Tesla Energy moving out of 68,025 square feet at 3055 Clearview Way-Bldg C; and Triton Container moving out of 54,400
square feet at 55 Green St.

Tenants moving into large blocks of space in 2018 include: Salesforce.com, Inc. moving into 609,018 square feet at Salesforce Tower; Facebook moving into 432,000 square feet at 181 Fremont; and Facebook moving into 252,000 square feet at 100 Independence Dr.

The Class-A office market recorded net absorption of positive 1,699,338 square feet in the second quarter 2018, compared to positive 1,739,546 square feet in the first quarter 2018, positive 34,761 in the fourth quarter 2017, and positive 32,297 in the third quarter 2017.

The Class-B office market recorded net absorption of positive 288,253 square feet in the second quarter 2018, compared to negative (112,834) square feet in the first quarter 2018, positive 322,601 in the fourth quarter 2017, and negative (153,199) in the third quarter 2017.

The Class-C office market recorded net absorption of negative (2,529) square feet in the second quarter 2018 compared to positive 92,789 square feet in the first quarter 2018, positive 65,192 in the fourth quarter 2017, and negative
(25,315) in the third quarter 2017.

Net absorption for San Francisco’s central business district was positive 1,223,356 square feet in the second quarter 2018. That compares to positive 1,803,461 square feet in the first quarter 2018, negative (19,130) in the fourth quarter 2017, and negative (107,806) in the third quarter 2017.

Net absorption for the suburban markets was positive 761,706 square feet in the second quarter 2018. That compares to negative (83,960) square feet in first quarter 2018, positive 441,684 in the fourth quarter 2017, and negative (38,411) in the third quarter 2017.

Vacancy

The office vacancy rate in the San Francisco market area decreased to 6.1% at the end of the second quarter 2018. The vacancy rate was 6.8% at the end of the first quarter 2018, 6.8% at the end of the fourth quarter 2017, and 7.0% at the end of the third quarter 2017.

Class-A projects reported a vacancy rate of 6.9% at the end of the second quarter 2018, 8.0% at the end of the first quarter 2018, 8.0% at the end of the fourth quarter 2017, and 8.0% at the end of the third quarter 2017.

Class-B projects reported a vacancy rate of 6.2% at the end of the second quarter 2018, 6.8% at the end of the first quarter 2018, 6.5% at the end of the fourth quarter 2017, and 6.9% at the end of the third quarter 2017.

Class-C projects reported a vacancy rate of 3.1% at the end of the second quarter 2018, 3.1% at the end of first quarter 2018, 3.4% at the end of the fourth quarter 2017, and 3.7% at the end of the third quarter 2017.

The overall vacancy rate in San Francisco’s central business district at the end of the second quarter 2018 decreased to 6.7%. The vacancy rate was 8.1% at the end of the first quarter 2018, 8.3% at the end of the fourth quarter 2017, and 8.3% at the end of the third quarter 2017.

The vacancy rate in the suburban markets decreased to 5.8% in the second quarter 2018. The vacancy rate was 6.1% at the end of the first quarter 2018, 6.0% at the end of the fourth quarter 2017, and 6.4% at the end of the third quarter 2017.

Largest Lease Signings

The largest lease signings occurring in 2018 included: the 763,102-square-foot lease signed by Facebook at Park Tower At Transbay in the SF Downtown Core market; the 381,517-square-foot deal signed by Cruise Automation at 301-345 Brannan Street in the SF Downtown Core market; and the 278,545-square-foot deal signed by WeWork at Union Bank in the SF Downtown Core market;.

Sublease Vacancy

The amount of vacant sublease space in the San Francisco market increased to 1,517,292 square feet by the end of the second quarter 2018, from 1,452,608 square feet at the end of the first quarter 2018. There was 1,607,988 square feet vacant at the end of the fourth quarter 2017 and 1,647,772 square feet at the end of the third quarter 2017.

San Francisco’s Class-A projects reported vacant sublease space of 751,777 square feet at the end of second quarter 2018, up from the 736,674 square feet reported at the end of the first quarter 2018. There were 741,473 square feet of sublease space vacant at the end of the fourth quarter 2017, and 793,039 square feet at the end of the third quarter 2017.

Class-B projects reported vacant sublease space of 685,932 square feet at the end of the second quarter 2018, up from the 640,469 square feet reported at the end of the first quarter 2018. At the end of the fourth quarter 2017 there were 780,221 square feet, and at the end of the third quarter 2017
there were 810,253 square feet vacant.

Class-C projects reported increased vacant sublease space from the first quarter 2018 to the second quarter 2018. Sublease vacancy went from 75,465 square feet to 79,583 square feet during that time. There was 86,294 square feet at the end of the fourth quarter 2017, and 44,480 square feet at the end of the third quarter 2017.

Sublease vacancy in San Francisco’s central business district stood at 571,986 square feet at the end of the second quarter 2018. It was 508,301 square feet at the end of the first quarter 2018, 519,531 square feet at the end of the fourth quarter 2017, and 541,666 square feet at the end of the third
quarter 2017.

Sublease vacancy in the suburban markets ended the second quarter 2018 at 945,306 square feet. At the end of the first quarter 2018 sublease vacancy was 944,307 square feet, was 1,088,457 square feet at the end of the fourth quarter 2017, and was 1,106,106 square feet at the end of the third quarter 2017.

Rental Rates

The average quoted asking rental rate for available office space, all classes, was $59.50 per square foot per year at the end of the second quarter 2018 in the San Francisco market area. This represented a 0.9% decrease in quoted rental rates from the end of the first quarter 2018, when rents were reported at $60.04 per square foot.

The average quoted rate within the Class-A sector was $62.38 at the end of the second quarter 2018, while Class-B rates stood at $58.25, and Class-C rates at $48.97. At the end of the first quarter 2018, Class-A rates were $63.40 per square foot, Class-B rates were $58.48, and Class-C rates were
$47.99.

The average quoted asking rental rate in San Francisco’s CBD was $63.52 at the end of the second quarter 2018, and $58.79 in the suburban markets. In the first quarter 2018, quoted rates were $64.08 in the CBD and $59.33 in the suburbs.

Deliveries and Construction

During the second quarter 2018, five buildings totaling 1,046,864 square feet were completed in the San Francisco market area. This compares to six buildings totaling 1,969,442 square feet that were completed in the first quarter 2018, one building totaling 2,000 square feet completed in the fourth quarter 2017, and 275,922 square feet in two buildings completed in the third quarter 2017.

There was 8,556,556 square feet of office space under construction at the end of the second quarter 2018.

Some of the notable 2018 deliveries include: Salesforce Tower, a 1,400,000-square-foot facility that delivered in first quarter 2018 and is now 96% occupied, and 350 Bush St, a 447,000-square-foot building that delivered in first quarter 2018 and is now 99% occupied. The largest projects underway at the end of second quarter 2018 were First Street Tower, a 1,250,000-square-foot building with 23% of its space pre-leased, and Park Tower At Transbay, a 772,960-square-foot facility that is 99% preleased.

Inventory

Total office inventory in the San Francisco market area amounted to 171,624,815 square feet in 3,916 buildings as of the end of the second quarter 2018. The Class-A office sector consisted of 81,703,249 square feet in 319 projects. There were 1,509 Class-B buildings totaling 66,109,412 square feet, and the Class-C sector consisted of 23,812,154 square feet in 2,088 buildings. Within the Office market there were 204 owner-occupied buildings accounting for 19,963,730 square feet of office space.

Sales Activity

Tallying office building sales of 15,000 square feet or larger, San Francisco office sales figures fell during the first quarter 2018 in terms of dollar volume compared to the fourth quarter of 2017.

In the first quarter, 12 office transactions closed with a total volume of $551,850,000. The 12 buildings totaled 806,857 square feet and the average price per square foot equated to $683.95 per square foot. That compares to 14 transactions totaling $615,391,000 in the fourth quarter 2017. The total square footage in the fourth quarter was 1,097,652 square feet for an average price per square foot of $560.64.

Total office building sales activity in 2018 was down compared to 2017. In the first three months of 2018, the market saw 12 office sales transactions with a total volume of $551,850,000. The price per square foot averaged $683.95. In the same first three months of 2017, the market posted 11 transactions with a total volume of 1,501,433,500. The price per square foot averaged $635.65.
Cap rates have been higher in 2018, averaging 6.21% compared to the same period in 2017 when they averaged 5.57%.
One of the largest transactions that has occurred within the last four quarters in the San Francisco market is the sale of 101 Mission St in San Francisco. This 206,455-square-foot office building sold for $163,250, or $790.73 per square foot. The property sold on 6/19/2018, at a 4.5% cap rate.”

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Napa Valley Real Estate Report August 2018

Fortune Magazine’s recent article “The End is Near for the Economic Boom” is representative of the cautionary tone of a growing number of financial advisors, investors and economists that the expansionary economy we’ve had since 2009 is nearing its end.

Facebook’s dramatic 20% share price one-day drop (it’s still down over 17%) and Netflix’s 18% share price decrease may have injected further buyer caution into a market where prices were already showing signs of leveling off.

Napa’s three-month rolling median home sales prices are up modestly over 2017 while condo prices are considerably higher.

Single Family Homes:
The three-month rolling average median sales price of $712,333 is up 4.3% over last year’s.

Year-to-date, new listings are down 0.2% while sales are down 7%.

July’s inventory of 3.2 months is virtually the same level as in 2017.

The median percent of list price received was 95%.

Condominium/Townhomes:
The three-month rolling average median sales price of $517,333 is up 15% over last year’s. Note that there are 79 condo sales year-to-date so this might indicate a higher-priced mix than last year’s.

Year-to-date, new listings are down 3.7% while sales are down 6%.

July’s inventory of 2.5 months is 67% higher than in 2017.

The median percent of list price received was 95%.