High-rise condos near San Francisco’s downtown—which account for the bulk of San Francisco’s newer housing stock—are piling up amid rising interest rates and a shift in the city’s housing market.
The luxury condos are another casualty of San Francisco’s slow return to offices, with a once-thriving social and retail scene in SoMa and Mission Bay now gasping for air. Home buyers are looking to other neighborhoods for less cookie-cutter units, more outdoor space and—frankly—more life.
“The amenities you can take advantage of living downtown now versus before the pandemic are much smaller,” said Laila Salma, a broker with Salma & Company. “Right now it’s just not a space that’s vibrant.”
Take the $4 million July sale of a unit in 181 Fremont, one of the city’s premier condo towers, as a recent example. The unit sold for some 30% lower than the $5.77 million paid by the seller in 2018, according to real estate blog Socketsite.
A letter about the sale from real estate brokerage The Krishnan Team said while the discount they were seeking initially “didn’t seem possible,” the offer was eventually accepted at $1.4 million below the list price.
“The market is the softest it's been since 2008. This is especially true for high-rise developments in San Francisco,” the brokerage wrote.
The same trends hold true for condos in the lower-tier mid-Market area: A unit at 1075 Market that was purchased for $882,000 in 2018 is currently on the market for $670,000.
“There are some people losing a lot of money on these properties,” said Ilana Minkoff, a broker with Vanguard Properties. “Down there we’re not at 2018 pricing, we’re maybe closer to 2016 or 2017.”
Condo prices fell 13% year-over-year in August, according to data from Vanguard Properties. But areas in and around SoMa were outliers. South Beach, Mission Bay and the Bayview were the only three neighborhoods where the average condo sold for lower than its list price in August, with lower prices per square foot compared to other neighborhoods. Conversely, condos in NoPa, Castro and Richmond were selling at more than 115% over list price on average.
Dustin St Jonn, who moved back to the city in 2016 after a spell on the East Coast and recently bought his first home, said he didn’t look at downtown condos at all even though his workplace at the time was located in SoMa. He wound up purchasing a “fixer-upper” condo unit in Twin Peaks—close to the Castro, his main social hub—last April, and spent the last year improving the property.
“I think downtowns are going to kind of have to reshape themselves and rethink themselves to make themselves attractive,” St Jonn said. “We're no longer that 9-to-5, Monday through Friday environment and I don't see us going back to that, even though offices are reopening.”
Minkoff echoed that sentiment, describing depreciating value for downtown high-rise units, particularly those owned by investors and formerly filled with tenants paying top dollar to be close to their offices or transportation down the Peninsula.
But price drops in the area that includes SoMa and South Beach have been especially stark in the ultra luxury segment, defined as condos over $3 million, which saw a nearly 23% year-over-year drop in average price per square foot for the second quarter, according to Compass.
“If you’re an investor you’re not going to want to sit and keep a unit empty for three years. You’re going to want to sell,” Minkoff said, noting that the supply glut has made that more difficult. She’s currently working with a client to sell a condo in Mission Bay and recommended they drop the asking price by $100,000.