Forty technology companies are looking for two million square feet of office space in San Francisco, most of it South of Market, according to a report by Colliers International. Most concede that the technology sector has been the culprit for property appreciation in San Francisco. But have you considered why that is exactly? The industry’s boom-and-bust cycles has given its players a robust ability to earn large sums of income, which has a correlation with affordability and home prices. Specifically, economists and laymen alike recognize that one of the main drivers in home ownership is having the financial bandwidth and confidence in making such a large purchase, which the Tech industry clearly affords its workers given the compensation packages offered.
The Bay has experienced an influx of new ‘Techies’ entering the work force for companies such as Twitter, Facebook and LinkedIn. One can internalize this phenomenon by merely observing the surge in rents. Specifically, the occupancy rate in the City rose six percent between 2010 and 2011, while the average cost of all rentals went up from $2,214 to $2,422, a 9.3% increase, according to RealFacts data. A 3.3% differential multiplied by the population of SF (approximately 809,000) is a total of nearly 26,700 people that are scrapping to find a place to live, per year. Increased hiring at tech companies indicates confidence by both niche and conglomerate companies.
With the Tech market heating-up again, and rents sky-rocketing – what are the implications for the prospects of out-right home ownership? Historically, a swell in the rental market tends to spill over into a greater demand and thus increase in values for home ownership. People vying for rentals quickly come to the realization that instead of ‘throwing money away’ via renting that it is better to make an investment in owning a piece of San Francisco real estate. Real estate values are arguably at 2002 levels given the sales activity I am experiencing today; plus, interest rates are within a range not seen in the past 50 years. This is what I dub: the perfect storm for first time homebuyers and investors alike. These sound indicators’ reminds me of an old adage, “It’s better to buy Bay Area real estate and wait, than to wait to buy Bay Area real estate” – this cannot be more true today.
The takeaway: San Francisco remains and will continue to be the epicenter for the Tech Hub of the world. Innovative people want to live here despite the concrete evidence that there is little remaining land to develop, (thus limited housing stock available) and in turn, continuous demand as evidenced by the data above.