Summer Rush 2021: How 2020 Has Shifted Our Lives and impacted the Real Estate Market
2020 was an unprecedented year and the changes that were necessary to make it through the pandemic will reverberate throughout the sales and rental market here in the San Francisco Bay Area for many years to come. As we pass the one-year mark since the world changed, one can cautiously start to feel a sense of “normalcy” slowly return. As schools, businesses, and restaurants start to reopen, many are asking - what’s the real estate market going to look like? It’s not a trivial question, as our lives are now more intertwined with where we live than ever before. Single professionals, couples, and families all are grappling with finding a home containing the right balance of space, cost, convenience, and safety. If 2020 taught me anything, it’s that it will be impossible to predict the future. As a relocation consultant, it’s part of the game to adjust and flow with what is, and not what we want it to be. In the Bay Area, prices have always been high and so we try to temper our clients’ expectations while still providing the highest quality consultation and services. That being said, we now have a year’s worth of market feedback on the Bay Area’s migration and real estate patterns. Now, spring has sprung and hopes of reopening run high in the minds of locals. How can this past year inform us and prepare us for what’s to come? Let’s begin with...
Migration patterns changed dramatically in 2020, both regionally and in San Francisco. With many employers shifting to Working from Home, no longer did living near employment centers, public transit, or shuttle lines command top consideration. Early in the pandemic - with the economy in question - many SF residents moved “back home” to care for family or to save on rent and get more space. Former die-hard City-dwellers began to look to the suburbs for relief. Being stuffed into a one-bedroom condo in an amenity building was no longer acceptable for couples and housemate groups. Instead of valuing “City amenities” - things like world-class restaurants, doorman buildings, and in-house gyms - City-dwellers began to crave an office and yard for entertaining guests outside. For the first time that I can remember, more people wanted out of SF than in.
Exodus to the Burbs
The urban-suburban neighborhoods in the East Bay that are near enough to the City but with the ‘walkability’ factor typically found in some SF neighborhoods have become popular areas for couples relocating. Additionally,the more suburban areas of LaMorinda, the Peninsula, and Marin have become even more popular for families fleeing the City and looking for backyard space and a bonus or office room for home-working or -schooling. As a result, home prices in these desirable suburbs skyrocketed in the sales market in 2020 and rents did not decrease by much (and in some areas increased) when the City’s rental market tanked.
A Shift Within San Francisco
Within San Francisco, rents in the East Cut neighborhood - the hottest neighborhood in SF for incoming professionals in 2019 - dropped by around 30%, as did the areas of SOMA, South Beach, and Mission Bay. As commuting downtown was no longer a consideration and working from home became the norm, residents deserted these once highly-desired new builds with sweeping views of the Bay, beautiful roof decks, and luxury fitness centers. Due to Covid, all common areas shuttered indefinitely so condo residents were paying for amenities they were unable to actually enjoy. Livable square footage, office space, kitchen and outdoor space, safety, access to walking and running trails replaced proximity to the office and public transit as renters reevaluated their priorities out of necessity.
From left to right: San Francisco's "East Cut", suburban Lafayette, San Francisco's Pacific Heights
On the other hand, some parts of San Francisco retained their value and piqued the interest of couples and families not quite ready to give up the City life. Already gaining steam in 2019, the north side neighborhoods of upper and lower Pacific Heights, Marina, and Cow Hollow were the most popular places to rent in 2020. Prices were relatively stable in these highly desirable neighborhoods that afforded views of the ocean, walkability to a local community of small businesses, and access to parks and nature in the Marina, Presidio, and Lafayette Park. Businesses along Chestnut, Union, and Fillmore remained open and had a more vibrant feel than the deserted Downtown, Financial District, or East Cut districts.
Surprising Migration Into the City
But the East Cut was not entirely forgotten! A surprising turn for 2020 was the influx of an older crowd into the City’s once-bustling but now empty amenity buildings. As the year went on - the rents bottomed out - we witnessed once rural and suburban lifers snatching up condo deals in East Cut and Mission Bay.
The reasons are varied, but this surprising twist makes a lot of sense on many levels. California’s suburban sales market is red hot due to Covid (reasons mentioned above), interest rates are still relatively low, and a limited supply of single-family homes equals a good time to cash out. Many retirees who have managed to hold onto their homes through the dot com busts have now accumulated several times their initial investments, making them “California Rich.” Add in the State’s current real estate tax-friendly laws and policies that are sure to ignite movement, many retirees or soon-to-be retirees are using their sales dollars to make a bet that all the special things about the City - things like walking to their favorite French bistro or grabbing a cup of coffee and going to the opera - will come roaring back.
Our prediction for 2021:
As we enter the busiest part of the year, here is our best guess as to what one can expect about the rental market this late Spring and Summer.
Prices have already started to level out since the start of the year. As vaccinations for adults are becoming more common, the local industry is starting to have murmurs of a return to the office. Even if this is delayed further into 2021, people are already looking forward to moving back to the grand City. We have started to see apartments getting scooped up in a matter of days, just like in 2019. San Francisco will make a comeback; those who look in once deserted neighborhoods will have more options and deals.
No open houses + safety considerations = agent representation more important than ever.
Throughout most of 2020, open houses were not allowed in California for rentals or sales. As of today’s SF real state policies, they are still not allowed although restrictions have been lightened to allow for larger group viewings as long as it’s still one group at a predetermined time. If you were a property owner during the height of the pandemic last year, you can imagine the difficulties you would have in leasing out your property last year. This was where agent representation was more important than ever. The City, and Bay Area in general, has long been a landlords market, and many owners had the luxury of representing themselves as units flew off the market fast with little advertising or effort. The pandemic and safety restrictions changed all that as leasing agents were busier than ever last year, doing the hard and sometimes risky work of showing viewings one at a time so that owners would not have to. 2020 has accelerated individual owners' acceptance of hiring a middle person to help them manage their leasing.
Case in point: any potential tenant or buyer had to fill out a PEAD form (Property Entry Advisory and Declaration) before viewing any home on the market for rent or sale. The PEAD form is available to licensed real estate agents and must be signed by anyone entering a home for viewing before entry to the property. Filling in a PEAD form is still mandatory for entry to a home, whether to rent or buy. It is standard practice for the listing agent to send the form to the buyer or renter but in practice, it is often the tenant’s agent or buyer’s agent that sends the form to ensure a showing takes place promptly. This adds value to the client and gives a competitive advantage to a tenant who is represented over a tenant who is not represented by a licensed real estate agent. There have always been subtle advantages to being represented by a well-connected and savvy agent if you are a tenant but the advent of the PEAD form is a strong incentive to work with an agent in a competitive market to help you secure the best possible property for rent.
Our prediction for 2021:
As of today, local guidance still states that viewings (limited to one housing group) must be done by appointments and until further notice PEADs are also required. The value of agents is not going away anytime soon, as owners aren’t likely inclined to want to schedule their weekends around viewings and since only a licensed agent can send a PEAD.
Although the regional real estate organizations go by the recommendations of the CDC, it’s hard to imagine restrictions being loosened up to allow for mass open houses anytime soon, underscoring the value of agent representation for both owner and renter. Our advice to renters: if landing a special place is on the wishlist for you this summer, work with a relocation consultant or rental agent that holds a California real estate license so that your health and valuable time are protected.
High vacancy rates in City centers: From Owner’s market to Renter’s market.
My inbox is filled with leasing agents (representing owners in San Francisco) who say they are overloaded with listings and work as more owners contacted them in 2020 than ever before, desperate to fill vacancies that were once filled within a week. Owners had no idea how to price their homes as they had not seen a drop in rental prices since the early 2000s. In some neighborhoods rents had dropped 20% or more and apartments would often sit for months unrented. As a result, agents were often pricing these homes at 2016 prices. It was hard for owners to accept such a drop in rent prices but, after several months of trial and error, they could do nothing but to accept it, and for the savvy renter, 2020 provided many opportunities to move within SF or to move from the suburbs to a home in SF a price unheard of in 2019. Many took advantage of this. The opportunity was still there for renters looking to move to San Francisco who were open to multiple neighborhoods and willing to put some work into understanding the market.
Our prediction for 2021:
We're gradually seeing people move back to the City. Vacancy rates are dropping by the day, and apartments - especially the great ones - are rented by a week of listing. Work with a rental agent or relocation consultant to discuss which neighborhoods still have some discounts, if you are flexible on location. The months of May and June could be the last time where we see pandemic-level discounts.