Back in 2021, when COVID-19 was causing shifts in the multifamily market, a new 12-story luxury San Francisco apartment building called the Vance invited prospective tenants to an autumn roof party with free drinks, food and prizes in exchange for touring a unit.
For renters in San Francisco who hadn't joined the remote work exodus from the city, perks like gatherings and discounts on "pandemic apartments" were a small silver lining of the disruption. Times have changed, and now finding an apartment in the city is once again taking on aspects of blood sport, complete with bidding wars and renters lobbying landlords.
The Vance is again part of the latest trend, this time as investors jockey for a piece of that demand. DivcoWest said in a statement it snapped up the Vance, a 137-unit building at 830 Eddy St., in part of the Western Addition neighborhood that real estate agents are calling Cathedral Hill. The San Francisco-based investor joined JB Housing Ventures on the $43.3 million deal to buy the building from an affiliate of Mitsui Fudosan Americas, public records show.
Richie DeBeikes, DivcoWest’s head of residential and Southern California investments, described the company in a statement as “firm believers in the resilience of San Francisco’s stability and growth.”
Real estate professionals credit the surging growth of artificial intelligence as an important part of the city’s comeback, as startups flood the city and investors who sat out the dark pandemic years ride back on a wave of tech-fueled optimism.
Apartment building buyers have ranged from institutional investors to tech billionaires.
In the spring, Los Angeles investor Pacific Coast Capital Partners shelled out more than half a billion dollars for a portfolio of 76 apartment buildings across San Francisco and Oakland in a clear vote of confidence for Bay Area multifamily real estate. Late last year, Google cofounder Sergey Brin acquired a 113-unit luxury apartment complex at 1844 Market St. The Fortress Group, a New York private equity giant, has itself or through affiliates amassed at least 11 multifamily properties in San Francisco since last year.
Housing crunch
Before the pandemic, San Francisco had one of the country's most expensive apartment markets, but it fell behind while New York kept up its reputation as an exorbitantly costly rental city. Now San Francisco rents have bounced back, registering the highest rent growth in the country in recent months.
“The combination of increased demand and very low new supply shows no sign of changing in the short term,” CoStar Senior Director for Market Analytics Nigel Hughes wrote last month. “On the demand side, growth in the artificial intelligence industry is drawing a new cohort of young tech workers to the city. High home prices and mortgage interest rates mean few can afford to enter the for-sale housing market, and this continues to underpin demand for apartments.”
Over the past two years, billions of dollars of investment capital have flowed into AI startups, feeding a spate of new office leases. In San Francisco, it is no surprise that the strongest rent growth is to be found in the neighborhoods where the expansion of AI firms is focused. Mission Bay tops the list, with annual rent growth of 12%, closely followed by South of Market, otherwise known as SoMa, with 11% growth in the past year.
San Francisco has plenty of office space — with a vacancy rate that’s not dropped much below 23% — even as the city’s multifamily vacancy rate is just above 4%. But while the last tech boom in the Bay Area saw high volumes of office construction, that did not happen on the residential side.
Multifamily construction activity peaked in 2019, when 25,000 units were under construction across the three major Bay Area markets. Since then, the pipeline has shrunk, as high construction costs, difficulty in obtaining financing packages and red tape have hindered housing construction, industry professionals tell CoStar News.
San Francisco permitted only 1,074 apartments last year, its lowest showing since the aftermath of the Great Recession and far short of the city’s state-mandated targets by 2031. Rents in San Francisco have gone up accordingly, exceeding $3,300 per month, more than double the nation's average.
All but eight of the 137 apartments at the Vance are leased, and rents range from a studio under 500 square feet for $2,352 per month to a two-bedroom for $6,027, according to Apartments.com.