Re-Bound to Happen

written by JAY GREENBERG

2022 proved to be another interesting and exciting year. Downtown San Francisco— one of the hardest-hit areas during the pandemic—is still in recovery mode, facing challenges that include recent loan defaults and high vacancy rates. So far, there has been low sales inventory for 2023. Interest rate hikes appear to be slowing down for the moment, and the rental market is doing well as people continue to return to the city.

But for now, let’s take a look at how 2022 came to a close.

The following are 2022 year-end statistics for the 5-9-unit sector and the 10-plus-unit sector versus the same time period for, 2017, 2018, 2019, 2020, and 2021.

5-9 Units

The average price per square foot has bounced around since 2017 without any big peaks or valleys. The yearend cost per square foot was $535 in 2017, $561 in 2018, and $554 in both 2019 and 2020. Price per square foot dropped a bit to $524 in 2021 and again to $507 in 2022—our lowest figure since 2014.

Gross rent multipliers (GRMs) have been on the decline since 2016, besides 2018, which was a record-breaking year for sales and value indicators. The average GRM was 17.79 in 2017 and 18.32 in 2018. In 2019, the GRM dropped to 16.97, and in 2020, it dropped to 15.71—the lowest GRM since 2012. The downward trend continued, however, with a GRM of 14.93 in 2021 and 14.47 in 2022.

Like the cost per square foot, the average price per unit has bounced up and down since 2017 without any big peaks or valleys. In year-end price per unit was $457,000 in 2017, $496,000 in 2018, $489,000 in 2019, $484,000 in 2020, and $441,000 in 2021. In 2022, the year-end average price per unit is $428,000—a 3% decrease in a yearover-year comparison.

Year-end dollar volume in the 5-9unit sector has been strong, generally increasing since the financial meltdown of 2008, not including 2020, when there was a significant decline. Dollar volume reached $298 million in 2017, $317 million in 2018, and $349 million in 2019. In 2020, the significant decline resulted in $236 million total sales volume for the year—a 32% decrease in a year-overyear comparison. We bounced back, reaching $358 million by the end of 2021, and dropped slightly to $317 million in 2022—an 11% decrease in a year-over-year comparison.

Transaction levels have remained steady over the years, except for the first year of the pandemic. There were 105 recorded closings by the end of the year in 2017, 104 in 2018, and 107 in 2019. In 2020, there were only 78 recorded closings, the lowest level in the past decade. There was a rebound in 2021, ending the year with 108 closings, and another jump in 2022 with 117 closings—an 8% increase in a year-over-year comparison.

10-Plus Units

Note: 2018 was a record-setting year for value indicators and transaction levels.

The average price per foot was $555 in 2017, $621 in 2018, $598 in 2019, $544 in 2020, and $520 in 2021. At the close of 2022, the average price per square foot was $447—a 14% decrease in a year-over-year comparison, and our lowest value since 2014.

The average GRM was 16.85 in 2017, 18.33 in 2018, 16.56 in 2019, and 15.54 in 2020. In 2021, we ended the year with an average GRM of 14.15, and in 2022, the GRM dropped again to 13.54—a 4% decrease in a yearover-year comparison, and our lowest value since 2012.

The average price per unit was $404,000 in 2017, $471,000 in 2018, and $466,000 in 2019. There was a 9% decrease to $425,000 in 2020, followed by a second 9% decrease to $385,000 in 2021. The average price per units dropped another 10% to $346,000 in 2022, our lowest value since 2014.

As mentioned previously, dollar volume in the 10-plus unit sector was off the charts in 2018, reaching a record breaking $1.1 billion in sales volume. Before 2018, the previous high was $703 million in 2013. Year-end dollar volume reached $624 million in 2017 before reaching $1.1 billion in 2018. Dollar volume fell to $572 in 2019 and $337 million in 2020—the lowest dollar volume over the last decade. There was a nice rebound to $554 million in 2021 (after a sluggish start), and another decline to $511 million at the end of 2022—an 8% decrease in a yearover-year comparison.

Transaction levels were very low in 2015 and 2016 before picking up to 88 closed transactions by the close of 2017. After increasing to 103 closed transactions by year-end 2018, there was a significant decrease to 65 closings in 2019 and 46 closing in 2020. There was a rebound in 2021 to 83 closed transactions, and then another drop to 63 closings in 2022—a 24% decrease in a year-over-year comparison.

The source of the numbers reported come from Jay Greenberg & Vitaly Rutus, San Francisco Multiple Listing Service, and Costar Comps.

My Two Cents

The figures above tell a story. The 5-9unit sector was robust through 2022, and through the third quarter, prices held steady. But, as expected, rising interest rates impacted pricing, and toward the end of the year, pricing levels came down.

In the 5-9-unit sector, there was a 3% decline in all reported value indicators in a year-over-year comparison.

The data for the 10-plus-unit sector demonstrates greater weakness in this segment of the market. Price per unit and price per foot values dropped more than 10%, and GRMs decreased by approximately 4%.

Interestingly, 2022’s year-end GRM of 13.54 is the lowest multiplier we have seen since 2012; looking back to the mid90s, it was rare to have a multiplier even this high. Additionally, transaction levels dropped approximately 25% from 2021, and dollar volume dropped approximately 8%.

In the second half of 2022, we started to see some closings in the Downtown sector of San Francisco. Downtown was hit hard during the pandemic, and the

Re-Bound to Happen… continued on page 40