The condo market in downtown SF is bursting at the seams, with units being sold at discounted prices

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San Francisco’s sluggish, post-COVID recovery is hammering the downtown condo market, with owners increasingly willing to sell at a discount amid ongoing tech layoffs and office closures, according to a new report from real estate firm Compass .

The median sale prices of apartments in the greater downtown and South of Market district, which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach, are down 16.5% from a year ago, according to the report. Since December last year, the average apartment sales price in those neighborhoods has fallen from $1.475 million to $1.23 million.

The drop in median prices in downtown neighborhoods was double that in other parts of the city. Outside the center, the average price of apartments fell by 7% over the past year, while single-family homes fell by 7.5%.

While real estate agents tend to be rosy in their marketing materials, the Compass report doesn’t sugarcoat the current situation. It concludes that the drop in demand is caused by “a triple whammy of economic, demographic and quality-of-life issues”.

“I knew the market segment was weakened, but I didn’t realize how much things had changed,” said Patrick Carlisle, principal market analyst at Compass. “It was a bit shocking.”

The problems are both macro and micro.

On a national level you have a falling stock market, rising interest rates and inflation. Meanwhile, downtown San Francisco lags behind other cities in office occupancy, and the lack of foot traffic cripples small businesses and makes the streets less safe. The high-rises that have sprung up south of Market Street over the past 20 years were intended to serve the hundreds of thousands of workers who poured into the city each morning. Now that those jobs are remote, the demand for housing has decreased.

“San Francisco has gone from being the hottest office market in the world to just about the weakest,” says Carlisle.

Two recent sales reports at Lumina, a two-tower luxury complex south of Market, show how the market has shifted, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first involves a 1,791 square foot, three bedroom, three bath unit on the 32nd floor of the tower at 338 Main St. That unit was sold in May 2016 for $3.25 million and then re-traded in August 2019 for $3 .5 million. It re-entered the market in September this year with an asking price of $3.15 million, before finally selling for $2.68 million in November, a 23.4% drop since 2019.

Meanwhile, a two-bedroom unit in the same tower is being marketed for $2.6 million, which if sold at that price would represent a 21% drop from its 2016 price of $3.295 million.

While the current market presents an opportunity for buyers, the rise in interest rates to a 20-year high offsets any savings that could be made from the lower price, Carlisle said. But for buyers with cash for a down payment, or those willing to gamble they can refinance later at a lower interest rate, there are opportunities.

“Now is a good time for buyers to negotiate extremely aggressively,” he said. “If you see a unit you like, just ignore the asking price and decide what you’re willing to pay for it. There are many sellers who just want to move on. If they can make a deal, they will, even if it is far below expectations.”

Real estate agent Kevin Birmingham of Park North Real Estate said the report is consistent with what he sees in the city. He just sold a condo in the Twin Peaks area that was put on the market for $695,000. It closed at $680,000. The seller expected to get $800,000.

As such, many potential sellers want to rent out their units. “Applies are being withdrawn and going straight to the rental market,” said Birmingham.

Gregg Lynn of Sotheby’s International Realty, which focuses on the luxury apartment market, said the optimism of 2021 – when San Franciscans were vaccinated and began to feel comfortable in the crowd again – has led to uncertainty.

Some families who bought before the pandemic and expected to split their time between San Francisco and wine country or Tahoe have found they don’t have much of a reason to come to the city. Others bought downtown apartments to be near their children and grandchildren, but their offspring left the city.

“Many of our clients aren’t using their apartments as much as they thought they would,” he said.

JK Dineen is a contributor to the San Francisco Chronicle. Email: [email protected] Twitter: @sfjkdineen

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