Yesterday we opened up a discussion on Paragon’s new Commercial Brokerage Apartment-Building Market report. Today I’d like to continue that discussion, starting with some points about new housing construction. In this category – rental, condo and social project – as well as plans and proposals for new development are still on the rise. However, these promises have not yet panned out to deliver enough completed units to sufficiently meet demand. This means, as our report finds, that 2015 and the following years may experience more of an impact.
Also continuing their upward trend is appreciation, which surged in the first half of this year. Overall, we’re seeing appreciation of dollar per-square-foot values since the bottom of the market in 2009 to 2011 to the tune of more than 50 percent. As we’ve always seen, location and the rents it commands are major determinants of investment real estate value, with premium Bay Area locations fetching top dollar-per-square-foot values when compared to other areas.
Comparatively, the lowest returns-on-cash investment, otherwise known as cap rates, can be found in the extremely expensive, old-prestige San Francisco neighborhoods that run from Pacific Heights/the Marina to Russian and Nob Hills. However, one look across the bay to Alameda County and it’s a whole different perspective, with savvy, long-term investors historically doing very well here.
The most expensive San Francisco submarkets are seeing apartment units with values twice of that of the national median home price, which is now $225,000. In terms of district sales breakdowns, the Downtown-Tenderloin district, with its large cluster of big apartment buildings, dominates sales volume in apartment units.
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