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Some Residence Consumers Are Betting on a Downtown San Francisco Comeback

Tales of doom about downtown San Francisco can be found in abundance, but some home buyers have a more optimistic view of the future of the city’s financial and tech district.

“Downtown San Francisco isn’t back to pre-pandemic days, but over the last three or four months we’re seeing a little uptick in inventory and sales,” said Mario Andrighetto, a salesperson with the Agency in San Francisco. “The tech companies are asking people to come back, and AI is bringing new jobs to downtown, which will reboot the landscape.”

Anecdotally, there are more pedestrians around downtown now than there were a year or so ago, Andrighetto said, who lives within walking distance of several downtown neighborhoods. San Francisco’s downtown radiates out from the Financial District at the north eastern edge of the city, fanning out to neighborhoods from South Beach to Embarcadero.

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“The city and companies are putting incentives in place to bring people back, so values are likely to go up,” Andrighetto said.

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Arrian Binnings, a realtor associate with Christie’s International Real Estate Sereno in San Francisco, said that there’s renewed optimism in San Francisco.

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“This downturn was a one-two punch on the chin for the city,” Binnings said. “First the pandemic emptied downtown. Then the interest rate hike revealed how sensitive San Francisco is. We’re a tech town with a vibrant startup ecosystem with private equity and venture capitalists, all of which are rate sensitive. But now that’s in the rearview mirror in part because the startup world has been turbocharged by AI.”

After years of hybrid and remote working, companies are now sending employees back to the office in San Francisco, too, Binnings said. Miami and New York City have recovered 80% of their pre-pandemic occupancy, according to a white paper by Placer.AI, a foot traffic analytics firm based in Israel, while San Francisco lags with just 55% of people back to the office. But over the past 12 months, San Francisco has seen the fastest growth in office visits compared to other cities.

Buyer Benefits From Changing Downtown

Downtown buyers will mostly find high-rise condo buildings with a few mid-rise buildings mixed in rather than single-family homes, Andrighetto said.

Sales prices for downtown condos were down 4% year over year in the first quarter of 2024, said June McDaniels, a real estate agent with Better Homes and Gardens Real Estate Reliance Partners in Berkeley, California.

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“The entire area downtown has taken a hit, but San Francisco is resilient and will bounce back,” McDaniels said. “This is just another cycle, and buyers can take advantage of the lack of competition before we see the full resurgence.”

Instead of multiple offers, downtown condos now take an average of 94 days to sell, which gives buyers time to negotiate. Plus, downtown condos are selling for slightly below the asking price, McDaniels said.

“Lots of listings downtown were gathering dust for a few years, but now they’re selling, and some are getting multiple offers,” Binnings said. “High-rise condos were the first to feel the pain and are coming back last, so we’re in the first inning of the recovery now.”

Overall, sales were up 5% across San Francisco in the first quarter compared to the first quarter of 2023, and prices were up 10% during that same period, Andrighetto said. But sales and prices vary by neighborhood. For example, in South Beach, a neighborhood just southeast of downtown and Financial District, a two-bedroom condo that sold for $1.6 million in May 2023 would sell for about $1.7 million now, he said.

“The trajectory for downtown is changing, and that’s like a temperature gauge for the residential market,” Binnings said. “While micro markets vary, largely speaking, downtown can offer some of the highest risks and highest rewards now compared to established neighborhoods like Pacific Heights where the rewards are less since prices didn’t go down as much there.”

Neighborhoods to Watch

In Embarcadero, a waterfront neighborhood by downtown, there are several new restaurants opening and permits for others, a good sign of a resurgence that will attract buyers, Andrighetto said. Condos here range from $850,000 to $1.1 million for a one-bedroom to up to $1.7 million for a larger two-bedroom, he said. In South Beach, the prices are similar but tend to have more square footage in the units compared to the Financial District.

“East Cut and South Beach are both on the edge of downtown and are walkable neighborhoods that offer good potential for buyers because you can get places with a little more space,” Andrighetto said. “In the Financial District, you’ll find less inventory because there are more commercial buildings than residential buildings. Some people like to buy studios and one-bedroom condos in the Financial District to use as a pied-à-terre for evenings in the city.”

At some of the premier luxury high-rise buildings in the Jackson Square neighborhood in downtown San Francisco, sellers recently received multiple offers after languishing on the market, Binnings said.

“It’s an encouraging sign that people are excited and buying into the notion that the recovery is real,” he said.

Long-Term Investment Considerations

Buyers who want long-term returns on a downtown condo in San Francisco may want to look for a smaller building with a lower condo fee, Andrighetto said. HOA [homeowner association] fees have gone up in the past year or so due to higher insurance costs, wages and inflation.

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“Lower fees mean you’ll get a better bottom line if you decide to rent your condo in the future, and it’s less costly for you, too,” he said. “But some people want luxury amenities, so for them it makes sense to invest in building with those features for long-term value.”

Another consideration, McDaniels said, is size.

“Condos with more square footage, especially with at least 1,300 to 1,400 square feet, sell better,” McDaniels said. “Two-bedroom units are better for long-term value. Depending on the neighborhood and size, most two-bedroom, two-bathroom units downtown start at $1.1 million up to about $1.6 million and higher.”

What’s more important than size, is whether you’re buying a “choice” or “blu-chip” unit, Binnings said.

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“You want to buy a unit that has the right orientation and floor plan, with a good view and natural light,” he said. “Those are the units that are getting all the attention right now. Real estate is an illiquid asset, so if you’re looking for a solid long-term investment, a choice unit will be easier to sell down the road.”

While buyers may be able to get a better deal on a less desirable unit, such as one with an awkward floor plan or a view of a wall, Binnings warns that those units won’t perform as well over time.

“San Francisco is a boom-and-bust town,” Binnings said. “This latest downturn revealed our political weakness and our inability to enact legislation to solve problems. Some things we just can’t figure out. But there are big opportunities in the things we can figure out and San Francisco will be great.”

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