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San Francisco Apartment Rents are on the Rise Again, Led by Gains in the Peninsula

CoStar Market Insights: Asking Rents Have Increased by Nearly 3 Percent in the Past Year
July 9, 2018

The 409-unit Solaire apartment tower at 299 Fremont St. in San Francisco

Year-over-year rent growth in San Francisco’s multifamily market has risen to 2.9 percent, which is on par with the 10-year historical average and up notably from 2016, a year in which rents went virtually unchanged following six years of extraordinary growth.

With asking rents averaging more than $3,000 per unit, San Francisco ranks as the most expensive market in the country. The market area includes San Francisco and San Mateo County (Peninsula), where rents are rising most rapidly.

Some residents may be moving to less-expensive Mid-Peninsula submarkets in search of affordability as housing costs climb regionally. In addition to cost savings, the submarkets with strong rent growth including San Mateo/Burlingame with 5 percent year-over-year gains can provide renters with easy access to growing employment hubs from San Francisco to Silicon Valley and San Jose, due to their central location and public transportation options.

In the market’s high-end areas, luxury two-bedroom apartments in Mission Bay and SoMa are commanding over $5,000 per month. While affordability remains a concern, many appear willing to pay to play in San Francisco. This has been exemplified by the strong lease-up of expensive new apartment units hitting the market.

Overall concession levels have also trended lower for several quarters as the number of new apartments in the market declines. Roughly 18 percent of all San Francisco apartments are still offering at least some type of rent concession with 12 percent offering at least one month free.

Occupancy among properties completed in 2017 is already up to 90 percent. However, concession rates for new apartments remains elevated, suggesting that developers are still competing to secure tenants and stabilize properties.

Apartment rents typically follow a seasonal pattern, and in San Francisco, rents have fallen in the second half of the prior three years. However, the steeper trajectory of rent growth achieved in the first half of 2018 suggests that positive momentum could carry over into this year’s fall and winter seasons.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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