The real estate market in San Francisco is booming due to strong economic growth fueled by the tech industry. Low unemployment and a growing population are increasing demand for housing and office space. Construction of new residential and commercial properties is accelerating to meet this rising demand. As a result, property values and rents are increasing across multiple sectors in San Francisco, making it an attractive market for both domestic and international investors.

1. 56 I CITYSCAPE I Jan/Feb 2014
A
s savvy investors continue to
seek out opportunities and
value for their new ventures,
the San Francisco real estate landscape
looks increasingly more attractive
as it once again positions itself in the
top tier of US cities recognised for
meaningful growth. Despite turmoil of
recent years in the US markets, the
San Francisco Metro area boasts plenty
of stabilisation and expansion signs
across multiple demand sectors and
property types.
Without a doubt, the remarkably low
unemployment figures and minimal
inventory rates significantly contribute
to the city’s overall economic health.
But, the area’s growing gentrification
fuelled by the burgeoning tech industry
remains a key underlying factor in San
Francisco’s frenzied boom in real estate
transactions this year. The continued
migration of companies and the influx
of affluent technology workers into the
cityisadrivingforceforthearea’sgrowth
and a trend that is unlikely to slow in the
nearfuture.Asaresult,therisingdemand
for property, historically low interest
Kamil Homsi, President
of Global Realty Capital,
provides an insight into
San Francisco’s attractive
real estate market which
currently ranks high on the
buying agenda among both
domestic and international
investors. Headquartered
in New York, Global Realty
Capital is a commercial
real estate company
offering comprehensive
services to global
investors, family offices,
and financial institutions.
rates, and increased business spending
accompaniedwithconsumerconfidence
are expected to help solidify the velocity
ofleasingandpurchasingtransactionsin
the near-term.
The City by the Bay, as it is commonly
known, happens to be one of the most
densely populated cities in the U.S.
Consisting of notoriously diminutive
dimensionsofonlysevenmilesbyseven
miles, the dwindling supply of buildable
land is likely to run out before long.
As city planners conceptually struggle
with balancing the transportation and
environmental needs of the growing
population, arithmetically squeezing
more and more people into such limited
space creates a housing shortage of
immense proportions. Consequentially
construction and development need
to accelerate to keep pace with the
swelling population, as is the case here.
Multifamilynewdevelopmentprojects
that were previously mothballed due
to the past financial crisis are steadily
movingfullspeedaheadwiththousands
of additional new housing units in the
pipeline.
Kamil Homsi
GOLDENGATE
TO SAN
FRANCISCO
SPECIALCONTRIBUTION

2. Existingcitylandlordsarealsoinvest-
ing millions of dollars in renovations
and various major capital improvement
projects in efforts to meet the housing
needs of the growing population.
As such, the construction levels for
residential projects have already sur-
passedpreviousyear’stotals.Thearea’s
housing development and rehabilita-
tion surge has created an encouraging
climate for higher rents, translating into
solid returns for investors.
Recent statistics suggesting that
multifamily properties are spending
less and less time on the sales market,
further attest to the magnetism and
popularity of this asset class.
In the meantime, the San Francisco
office market also continues to demon-
strate its strong performance. Since the
beginning of 2011, general inventory
levels for office space have steadily
declined fuelling considerable net
absorption and growth in rental rates.
The region has experienced a spike of
more than 50 percent in the average
leasing rates in the past three years.
Of course the technology base has
bred indisputable benefits for this
area, and with close proximity to Silicon
Valley the industry is anticipated to
further spread out into this metropolis.
As growing numbers of world renowned
companies like Twitter, Instagram,
Del Monte and Wells Fargo station
their corporate headquarters in San
Francisco, many more are likely to follow
suit. Continued generous economic
incentives additionally support the
upbeat trajectory in office occupancy.
Not to be outdone, the retail property
asset class also continues to benefit
from the sustained business growth.
In fact, since 2011 asking sale prices
for retail and office properties moved
identically in the same direction and
at the same pace. Although rents are
still below the peak levels reached
before the financial crisis, there still
is a tremendous amount of interest
and demand from both, investors and
tenants alike, to be part of this growing
retail market which is currently outper-
forming most metro cities in the U.S.
In assessing San Francisco’s medical
buildings sector, despite recent escala-
tion in activity, a sizable amount of
demand for such properties still goes
unmet due to the shortage in inventory.
As demographic and economic trends
in the area advance, more ambulatory
and wellness facilities, rehabilitation
clinics and surgery centres need to pro-
liferate in order to satiate the growing
healthcare needs of the population.
Furthermore, the full implementation
of universal healthcare laws under
the Patient Protection and Affordable
Care Act (a.k.a. Obamacare) could
exacerbate this shortage by bringing
thousands of newly insured individuals
into the healthcare marketplace that
is already in dire need of additional
medical services and facilities. As such,
investors may find that high-quality
SPECIALCONTRIBUTION
SAN FRANCISCO MULTIFAMILY
PROPERTY DAYS ON MARKET
Source: North American Bureau Of Research and Statistics
SAN FRANCISCO MULTIFAMILY
PROPERTY DAYS ON MARKET
Source: North American Bureau Of Research and Statistics
State Metro140
120
100
80
2011 2012 2013
Jan/Feb 2014 I CITYSCAPE I 57

3. 58 I CITYSCAPE I Jan/Feb 2014
But, aside from general industry
trends and dynamics brought on by
higher absorption and lower vacancy
rates, cap rates also significantly
contribute to determining market
conditions. Among other factors,
the Federal Reserve’s currently per-
petuated policy of fostering economic
growth while maintaining exceptionally
low interest rates is likely to produce
continued cap rate compression within
the San Francisco real estate markets,
opportunities with lots of potential
in the medical office segment in this
region still exist.
Given the designation as the region’s
business and social hub, the city’s
status creates one of the hottest
hospitality markets in the U.S. Last
year the city hosted about 16.5 million
visitors, pumping US$8.5 billion dollars
into the economy according to the San
Francisco Travel Association. As expan-
sion plans for the Moscone Convention
Center move forward, industry experts
project a need for an additional 33,000
hotel rooms in order to adequately
accommodate future business and
cultural travellers.
Judging from the current trends,
increased flow of capital is likely to
continue into the San Francisco area.
Statistics measuring the region’s
real estate sentiment point to added
incursion of funds from overseas
market players with Chinese inves-
tors in particular showing record
breaking interest in properties located
in one of the nation’s most elite
marketplaces. Looking forward, San
Francisco will likely remain high on
the buying agenda for domestic and
international investors.
in essence reaching the same levels
manifested prior to the financial crisis.
Overall, as underlying fundamentals
remain positive and as economic
recovery builds more momentum with
further strengthening and accelerated
growth, the San Francisco area indis-
putably looks poised for considerable
prosperity and relentless fruition in the
years to come.
To contact the author about this
article,Kamil Homsi can be reached
at kamil@globalrealtycapital.com
ASKING PRICES FOR OFFICE PROPERTIES
IN SAN FRANCISCO AREA ($/SF)
Source: North American Bureau Of Research and Statistics
ASKING PRICES FOR OFFICE PROPERTIES
IN SAN FRANCISCO AREA ($/SF)
Source: North American Bureau Of Research and Statistics
$400
$350
$300
$250
$200
$150
2006
State Metro County City
2007 2008 2009 2010 2011 2012 2013
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