If you are planning on moving to the Bay Area in the next couple of months, be prepared to pay a premium for your rent. San Francisco Bay Area rents rose around 7.8% in the second quarter of 2013, vs the national average of 3.1%.
What does this mean? In the San Francisco Bay Area your average rent is $2,498 per month, and in The City itself, the average rent is $3,295.
What are some of the reasons for this massive increase in rents? Well, the Bay Area’s booming tech sector has brought a large number of wealthy, individuals to the San Francisco, which has squeezed demand. In fact vacancies in the city fell to below 4.1% compared to the national average of 7.4%.
San Francisco also has very tight development controls. And although there are going to be a very large number of new apartment that will become available in the next 18 months, (14,377), it will do little to lower the average rental price. There is still a massive influx of people moving to the Bay Area to take part in the tech boom. In fact, the recently completed 22-story Trinity Place has preleased all 419 units, something that is virtually unheard of.
San Francisco City is not the only place in the Bay Area to see higher than average rent increases. According to the Wall Street Journal, Oakland saw a rent increase of 6.9%, and San Jose saw rents increase 5%
The dramatic rise in rental costs has drawn a flock of buyers to the Bay Area. Many homes are sold within two weeks, while in other areas around the country listing times can last months. Many multi-family unit buildings see fierce competition, and can attract more than 30 buyers all competing at a time. Cash Buyers are able to scoop up a lot of great deals, and closing quick seems to be a preference for many sellers.
For those of us that currently live in San Francisco, be aware that some landlords are finding any and every reason to evict tenants so they can find new tenants willing to pay a premium price to live in the Bay Area.
What does all this information mean? It’s very expensive to live in the Bay Area. Mostly because the jobs the Bay Area offers support the lifestyle. It is fair to expect that as long as the tech boom continues and salaries continue to rise, rent prices around the whole Bay Area will continue to rise. As people move out of San Francisco to escape the very high rental rates, rentals rates around the Bay Area will also continue to rise. Rents aren’t likely to come down until there is either a major increase in supple (unlikely in San Francisco) or a major decrease in demand (which could happen if the tech boom goes the way of the dotcom bubble).
All is not lost though. Despite the high average prices of rents there is a lot of diversity in San Francisco around rents. Western and Southern neighborhoods of San Francisco offer1 bedroom apartments with rents closer to $1600 on average, around half of the premium price paid in SOMA, South Beach, North Beach, and Financial district neighborhoods.
These cheaper neighborhoods offer excellent housing options with the only downsides being longer bus rides to get down to work downtown. And these neighborhoods (especially the Sunset and Richmond districts) are much safer than premium neighborhoods, especially areas in SOMA.
In conclusion, be prepared to pay much more than you expect when you move to San Francisco, and the trend is likely to continue. Get into real estate investing if you can, but always be smart about it.