January 29, 2023

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Downtown San Francisco's condo market is in shambles, with units being sold at bargain prices

Downtown San Francisco’s condo market is in shambles, with units being sold at bargain prices

According to a new report from real estate brokerage Compass, San Francisco’s precarious post-COVID recovery is hurting the downtown apartment market, as owners are increasingly willing to sell at a discount amid ongoing layoffs and office closures.

Median condo sales prices in the greater downtown and South Market area — which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach — fell 16.5% from a year ago, according to the report. Since December of last year, the median condo sale price has dropped from $1.475 million to $1.23 million in those neighborhoods.

The decline in average prices in the downtown neighborhoods was twice as high as in other parts of the city. Outside the city centre, the median price of apartments fell 7% in the past year, while the price of single-family homes fell 7.5%.

While real estate brokerages tend to be rosy in their marketing materials, the Compass report does not smooth over the current situation. It concludes that the decline in demand is being driven by a “triple whammy of economic, demographic and quality of life issues”.

“I knew the market sector had weakened, but I didn’t realize the degree to which things had changed,” said Patrick Carlisle, senior market analyst at Compass. “It was a bit shocking.”

The problems are both macro and micro.

On a national level, there is a falling stock market, high interest rates, and inflation. Meanwhile, downtown San Francisco lags other cities in office occupancy, and the lack of foot traffic is crippling small businesses and making the streets feel less safe. The high-rise residences that have proliferated on South Market Street for the past twenty years were intended to serve the hundreds of thousands of workers who poured into the city each morning. With those jobs gone, demand for housing has waned.

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“San Francisco has gone from being the hottest office market in the world to almost the weakest,” Carlyle said.

Two recent reports on sales at Lumina, a two-tower luxury complex in the south of Market, show how the market has shifted, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first includes a 1,791-square-foot, three-bedroom, three-bathroom apartment on the 32nd floor of the tower at 338 Main Street. This unit sold for $3.25 million in May of 2016 and then traded again in August of 2019 for $3.5 million. In September of this year, it hit the block again with a listing price of $3.15 million, before finally selling in November for $2.68 million, down 23.4% since 2019.

Meanwhile, a two-bedroom unit in the same tower is being marketed for $2.6 million, which if sold at that price would represent a 21% drop from its 2016 price of $3.295 million.

While the current market presents an opportunity for buyers, rising interest rates to their highest level in 20 years offset any savings that could be made through the lower price point, Carlyle said. But for buyers with cash for a down payment, or those willing to gamble that they’ll be able to refinance at a lower interest rate in the future, there are opportunities.

“This is a great time for buyers to negotiate very aggressively,” he said. “If you see a unit you like, ignore the asking price and say what you’re willing to pay for it. There are a lot of sellers out there who just want to get ahead. If they can strike a deal, they will, even if it’s way below expectations.”

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Realtor Kevin Birmingham of Park North Real Estate said the report aligns with what he’s seen around the city. He just sold one condo in Twin Peaks that was marketed at $695,000. It closed at $680,000. The seller expected to get $800,000.

As such, many potential sellers are looking to rent out their units. “The listings are being pulled out and going straight into the rental market,” Birmingham said.

Greg Lane of Sotheby’s International Realty, which focuses on the luxury apartment market, said the optimism in 2021 — when San Franciscans were getting vaccinated and starting to feel comfortable in crowds again — had faded.

Some families who bought before the pandemic and expected to split their time between San Francisco and wine country or Tahoe have found they have little reason to come to the city. Others bought downtown apartments to be near their children and grandchildren, only to have their children leave town.

“A lot of our clients don’t use their condos as often as they thought they would,” he said.

JK Dineen is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @sfjkdineen