Three months free rent? No problem. Free Peloton bike? Totally on the table. These are some of things prospective tenants are being offered right now, particularly in new-construction apartment complexes in San Francisco, as developers and landlords are getting desperate to fill vacancies.
It's all a numbers game if you're the owner of 100 rental units. If you have an average two-month turnover time in finding new tenants and average vacancy of five percent, you can expect to gross around 90 percent of your total rental revenue in a given year, give or take. (I'm simplifying here without building a spreadsheet.) Hike up both of those numbers by five points — three-month turnover and 10-percent vacancy — the annual revenue number slides down quickly. So if you're a building owner in San Francisco right now, it behooves you to make some money rather than no money on a unit, even if it's not as much money as you thought it was worth.
Add to that the issue of rent-controlled and shared apartments, of which there are many, and people needing a new place to live in SF have a lot of options that don't involve the possibility of a market-rate rent hike in a year or 18 months.
If you're not worried about that and want to move yourself into a sweet new studio or one-bedroom with brand-new appliances in one of the city's newer buildings, this is probably the best time in two decades to go shopping around.
As the SF Business Times reports this week, 40 percent of SF landlords have had tenants unexpectedly break leases since March, according to an August survey by the San Francisco Apartment Association (SFAA). And in SoMa, where rents soared in the last decade in new-construction towers and low-rise complexes, large swaths of units are sitting empty and owners are willing to give a lot of concessions to anyone willing to sign a lease — including things like free parking and DoorDash credits. The aforementioned Peloton bike offer reportedly went with a $1,995/month studio on Nob Hill, which was also offered with two months free.
Average asking rents for apartments are down 20 percent year over year, as Socketsite reported last week — and this data is typically based on larger, newer buildings reporting to rental and trade agencies, as opposed to rent-controlled and shared housing. The average asking rent for a one-bedroom just dropped to under $2,900, down from a peak of $3,700 (~22%) in recent years. Also, because so many rent concessions (e.g. two- and three-month free rent deals), what are called "effective rents" for landlords are down even further.
Over in Oakland, where the market often tracks with SF's but is known as the "last to rise and the first to fall," rents aren't dropping quite as rapidly in part because people from the city may have moved there for better deals. Average asking rent for a one-bedroom in Oakland is just under $2,200 now, down from a peak of $2,500 (~12%).
And, as of two weeks ago, per Socketsite, there were three times as many apartments listed for rent as there were at the same time last year.
It's up to the savvy tenant to do the math. If you need to change things up and move in a hurry, now's the time. Just know that if you stay longer than a year, those two months free may not mean as much to you later, and the owners will be trying to recoup that money with a rent hike down the line.
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