San Francisco’s Hot Rental Market and What It Means for Property Owners

Have you noticed that the San Francisco rental market is hot?

It’s more competitive than usual, and moving fast.

Why now? And, what does this mean for rental property owners and real estate investors?

We’re answering those questions so investors in San Francisco rental real estate can best position their properties for success in this market.

Quick Overview: San Francisco’s rental market has seen higher demand. Many San Francisco tenants feel priced out of buying a home, leaving them in the rental market. Rents are higher and vacancy rates are lower, which is good news for rental owners. Efficient leasing processes will help place good tenants quickly. Attention to new state laws is required when placing tenants, especially in a hot market where tenants are trying to outbid one another. Rents are higher but revenue is still a challenge, with owner expenses rising.

Understanding the Strength of San Francisco’s Rental Market

It’s being called a landlord’s market. Open houses are crowded. Just scheduling a showing requires flexibility and patience from prospective tenants. A lot of qualified renters are offering to pay more than the listed rent. 

Why?

• San Francisco’s economy is closely tied to the tech industry, which remains resilient and fast-growing. Even while some tech companies have faced layoffs and restructuring, AI-driven start-ups and companies like Anthropic and OpenAI continue to expand and hire. High-income workers are moving back into the city or returning after pandemic-era relocations.
• Some companies have remote-first work models, but many have asked their employees to return to the office. And even those with remote opportunities prefer to live near tech hubs for access to in-person opportunities, networking, and career growth. This momentum drives rental demand
• Supply can’t seem to keep up. San Francisco has some of the most restrictive zoning laws and construction regulations in the country. New developments face significant delays due to permitting, environmental reviews, inspection requirements, and even neighborhood opposition. 

Barriers to Homeownership

Many of the renters in San Francisco cannot buy a home, even with high salaries and comfortable savings. With median home prices still well above $1 million, homeownership remains out of reach for many residents. Large down payments, high mortgage rates, insurance challenges, and property taxes associated with buying a home in San Francisco make renting far more attractive.

This prolonged demand for rentals, even among income brackets that typically transition to ownership, boosts competition for quality units, especially in the most desirable neighborhoods.

What This Means for San Francisco Rents

According to a recent article in the San Francisco Chronicle, San Francisco’s median apartment rent jumped by 11% in June compared to last year. This is the highest increase in the country, and pretty remarkable considering the national median rent was down 0.7% over the same period. 

San Francisco’s median rent is currently resting at $2,941 per month. This is the highest it has been since 2020.

Not only are rental values higher, but vacancy rates are also lower. We’re at 3.5% (as of June), which is half the national rates and a significant drop from the 5.1% we saw in May.

What Does a Landlord’s Market in San Francisco Mean for Rental Property Owners?

The winds have shifted in San Francisco, and if you have a property to rent, you’re in a pretty strong position. Especially if that property is in a desirable neighborhood, a well-maintained building, and full of the updates and amenities qualified tenants are seeking.

Here are some of the best ways to leverage these strong market conditions: 

• Keep your leasing process efficient and responsive. Applications are sometimes coming in before properties are even shown. You need to make sure you’re consistent with your showings, your application procedures, and your screening to avoid any fair housing issues. 
• Be cautious about accepting rents that are higher than your listed price. This may seem like a gift; tenants willing to pay more than you’re asking. But, it’s potentially problematic. This is not an abiding process, and choosing a tenant because they’re willing to pay more instead of the earliest qualified applicant violates AB2493, a new California law that mandates earlier applicants be processed first.
• Remember that winter is coming.  While we believe this is more than just a case of seasonal popularity, rental markets do tend to slow down as the holidays and messier weather approach. Consider structuring lease agreements in a way that’s advantageous to both renewals and turnovers. 
• Expenses still need strict management. While rents are higher, revenue may take some time to catch up. This is thanks, in part, to higher maintenance costs, bigger insurance premiums, and investments in required safety inspections and upgrades.
• Raise your rents at renewal time as much as the law allows. There’s less of a risk that your tenants will leave, which means you’re in a stronger position to negotiate a lease renewal. You have to follow the limits that local and state rent control laws impose, but there’s no reason to skip an increase or water down the rent you’re asking. San Francisco tenants know that the market has shifted, and moving now will only be more difficult for them. 

Something else owners need to be aware of is property condition. The market is hot and the prices are high, but not necessarily for older homes or deteriorating units. Tenants are willing to pay more, especially as they understand the market dynamics, but they’ll want value for their higher rent prices. Provide energy-efficient appliances, smart home tech features like keyless entry, and aesthetic updates that will appeal to them and attract higher rental values.

Potential for Appreciation in San Francisco’s Market

While home prices in San Francisco are already high, the continued demand for housing and slow pace of new construction suggest there’s still room for appreciation over the long term. For rental property owners, this means not only consistent cash flow from rents but also the prospect of strong equity growth.

Those who hold their properties for the long term are likely to benefit significantly from future resale value or refinancing opportunities as market values increase.

San Francisco’s rental market has bounced back beautifully from a bit of a rocky period. Smart property owners can leverage these new market conditions when they’re strategic and intentional. 

We can help. Contact us at Gordon Property Management.