Downtown SF’s condominium market is cratering, with units selling at discounted prices

San Francisco’s lackluster, post-Covid recovery is hitting the downtown condo market, with owners poised to sell at a discount amid ongoing tech layoffs and office closings, according to a new report from real estate brokerage Compass.

Median sales prices in downtown and the South of Market District, including Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach, fell 16.5% from a year ago, according to the report. Since December of last year, the average sales price of a condo in these neighborhoods has dropped from $1.475 million to $1.23 million.

In the central districts of the city, the average prices fell twice as much as in other parts of the city. Last year, the average price of apartments outside the city center fell 7%, and single-family homes fell 7.5%.

While real estate brokers tend to be rosy in their marketing materials, the Compass report doesn’t reflect the current state. It concludes that the decline in demand is due to a “triple squeeze of economic, demographic and quality of life issues”.

“I knew the market segment was weak, but I didn’t realize how much things had changed,” said Patrick Carlyle, senior market analyst at Compass. “It was a bit of a shock.”

The problems are both macro and micro.

Nationally, 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 pedestrian traffic cripples small businesses and makes the streets feel less safe. The high-rise housing that has grown south of Market Street over the past 20 years was designed to serve the hundreds of thousands of workers who flood into the city every morning. As these jobs moved away, the demand for housing decreased.

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

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

The first is a 1,791-square-foot, three-bedroom, three-bathroom unit on the 32nd floor of the tower at 338 Main St. That unit was sold in May 2016 for $3.25 million, then bought again in August 2019 for $3.5 million. In September of this year, it hit the block again with a sale price of $3.15 million, before finally selling in November for $2.68 million, down 23.4% since 2019.

Meanwhile, a two-bedroom apartment in the same tower is selling for $2.6 million, a 21% drop from its 2016 asking price of $3.295 million.

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

“This is a great time for buyers to negotiate extremely aggressively,” he said. “If you see a unit you like, ignore the asking price and decide what you’re willing to pay for it. There are many sellers who just want to get ahead. “If they can close the deal, they will, even if it’s well below expectations.”

Realtor Kevin Birmingham of Park North Real Estate said the report is consistent with what he’s seeing around town. He sold a condo in the Twin Peaks area for $695,000. Closed at $680,000. The seller was expecting $800,000.

Hence, many potential sellers want to rent out their unit. “The listing is being picked up and going straight to the rental market,” Birmingham said.

Gregg Lynn of Sotheby’s International Realty, which focuses on the luxury housing market, said the optimism of 2021 — when San Franciscans are vaccinated and starting to feel comfortable in the crowd again — has given way to uncertainty.

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

“Many of our customers don’t use their apartments as much as they think,” he said.

JK Dineen is a staff writer for the San Francisco Chronicle. Email: Twitter: @sfjkdineen

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