Apartment rental prices slow to rise in S.F.

San Francisco’s apartment rental market has been the slowest in the country to bounce back after vacancies soared early in the pandemic, fueling a big drop in rents, new data shows.

In fact, San Francisco is the only big metro area in the U.S. where people are currently paying less for an apartment than they were before the outbreak of the coronavirus more than two years ago, according to real estate listings website Apartment List. The South Bay is right behind, with the San Jose metro area in second to last place for rent growth since the beginning of the pandemic.

The data illustrates just how much the Bay Area’s economy and rental market stand apart from other big U.S. cities, especially the population centers in the Sun Belt, which saw an influx of renters during the pandemic that caused vacancies to plummet and rental prices to soar over the course of two years, said Rob Warnock, senior research associate at Apartment List.

“San Francisco is the last major metropolitan area in the country where rent prices are lower today than they were in March 2020,” he said. “San Francisco has had a uniquely difficult time drawing economic activity back to some of its densest apartment-rich neighborhoods.”

The San Francisco area has one of the country’s highest concentrations of remote jobs, Warnock said, and after offices emptied during the pandemic, many employers in both the public and private sectors are hesitant to require workers to return. As a result, renters have been slower to migrate back compared with other major cities.

“Vacancies and rents typically move in opposite directions, so in 2020 when (San Francisco’s) vacancy rate spiked, prices fell quickly,” said Warnock in an email. “In 2021 and 2022 the vacancy has been falling, and rents have been returning to pre-pandemic levels.”

But the Bay Area’s market rebound has been “noticeably slower” than other places, Warnock said.

Vacancy rates shot up in the San Francisco metropolitan area from 5.3% in March 2020 to 9% in October 2020, according to Apartment List data. At the same time, median one-bedroom rents dropped 15% from $1,966 in March 2020 to $1,662 in December 2020.

The San Francisco metro area saw a gradual rebound in vacancies through 2021, with the rate declining to its current 5%. But rental prices have been slower to come back — the median rent for a one-bedroom apartment was $1,916 last month, still about 3% below the level at the outset of the pandemic.

With relatively less demand for apartments continuing to stave off big drops in the vacancy rate, rent increases in the San Francisco area also should remain relatively tame, Warnock added.

“Rent growth should continue throughout the summer, and I expect metro rents will reach 2020 levels in the coming months, but without a major influx of new demand I expect it will continue to pace behind other big cities,” he said.

The San Jose metro area also saw its vacancy rate increase early in the pandemic, from 5.6% in March 2020 to 9.5% in October 2020. Rents for a one-bedroom apartment went down 18% from $2,174 in March 2020 to $1,790 in December 2020.

But the San Jose area has been faster to recover compared to San Francisco: In May 2022, the vacancy rate had dropped to 4.33% and one-bedroom rent averaged $2,186.

A similar pattern, what Warnock calls a “U-shaped price curve mirroring an upside down U-shaped vacancy curve,” was seen in some other major metros across the country, particularly in coastal areas including Seattle, Washington, D.C., and New York.

Vacancy rates in the Boston metro soared from 6.3% in March 2020 to 9.9% in August 2020. But it has seen a strong rebound since then, with the vacancy rate dropping to 4.3% in May 2022, below the rate at the start of the pandemic. One-bedroom rents are 13% higher compared to the start of the pandemic.

Changes in New York’s vacancy rate weren’t as extreme as in some of the other major metros, increasing from 4.2% in March 2020 to 6.1% in September 2020 before declining again. Now, the vacancy rate is very low at 3.2% in May 2022 — and rents are 15% higher than in March 2020.

Warnock said he wasn’t certain why cities like Boston and New York have seen such strong recoveries; however, he speculated that Boston, with its relatively high concentration of universities, has attracted many returning students, while “dominant non-tech industries like finance and law may be inspiring more economic activity in the core urban areas” in New York City.

On the opposite side of the spectrum are many Sun Belt cities that saw apartment vacancies plummet and rental prices soar over the course of two years.

Those areas had many attractive features for renters seeking to flee metro areas like San Francisco, Warnock said.

“Largely concentrated in the Sun Belt, but also scattered around the periphery of major coastal metros, these are the more ‘affordable’ metros where families have turned for relief from urban lock-downs, small living quarters, and soaring cost of living,” he said.

Two notable examples are Tampa, Fla., and Las Vegas.

The Tampa metro area had a 6.8% vacancy rate at the start of the pandemic, which dwindled to 2.7% in August 2021. Meanwhile, one-bedroom rents increased 40% from March 2020 to May 2022.

The Las Vegas metro area went from a 6.6% vacancy rate in March 2020 to a low of 2.5% in August 2021. One-bedroom rents went up 34% during the pandemic.

However, some of the Sun Belt’s hot rental markets are starting to show signs of cooling, with vacancy rates rising — though rents continue to climb, Warnock said.

Since hitting their low in August 2021, vacancy rates in Tampa and Las Vegas have started creeping up, reaching 5% in May 2022.

“In 2022 the trend has decelerated, but marginal improvements in vacancy rates have slowed down,” Warnock said — though he noted that “total vacancies still remain well below pre-pandemic levels.”

Rents also have started spiking recently in some metros that had been slow earlier in the pandemic — notably San Jose, which saw the biggest increase in rent prices in the country over the past six months, at 7%, according to Apartment List’s latest monthly National Rent Report. New Orleans, Louisville, Salt Lake City and Dallas were the other metros in the top 10 for price growth over just the past six months, all at 6% or above.

Soaring rents in formerly affordable markets and new construction could be among the factors fueling the recent changes in trends, Warnock said.

“On the demand side, it could signal a new outmigration of renters who are unable to absorb pandemic-era rent growth,” he said, “while on the supply side it could signal that new apartments are now coming online following disruptions to the construction industry.”

Soaring inflation is applying pressure not only on housing affordability but also the cost of many goods from groceries to transportation, Warnock said, which will “further deter people from relocating to more expensive places,” where everything would be pricier.

“It may also suppress the rate at which the apartment vacancy rate bounces back because higher mortgage rates and higher construction costs make it challenging for renters to be able to afford to vacate their rentals and buy homes instead,” he said.

In its analysis, Apartment List looked at data on its website for listings in the 100 largest metro areas. Median rent was calculated based on new leases signed in a given market and month. The vacancy index for each location included properties that had been included on the Apartment List platform for at least six months, and was calculated based on an average of the daily vacancy rates for each property within the location, weighted by the number of units in each property.

Kellie Hwang is a San Francisco Chronicle staff writer. Email: kellie.hwang@sfchronicle.com Twitter: @KellieHwang