Realtor Patrick Belhon Maintains Positive View of the 2014 San Francisco Real Estate Market

The 2014 San Francisco real estate market is projected to be the top performer among the top 20 real estate markets in the United States.

By Patrick Belhon
Men in San Francisco thinking of buying a house -funny photo
Tight inventory and strong demand, especially for commercial properties, will help drive prices higher in the strong and flourishing local economy.

In 2013, sellers of residential real estate in San Francisco and the Bay Area of California did very well. Low inventory levels and high demand for homes in all price ranges led to the most desirable homes being snapped up as soon as they hit the market. Competition led to many homes being sold for more than their asking price.

The high price of San Francisco real estate did not dissuade buyers from entering the market. The luxury market did particularly well with more than 350 homes and 120 condos selling in excess of $2,000,000. Foreign investors helped to contribute to the demand for both moderately priced and luxury residences.

Commercial real estate also performed well in San Francisco and the entire Bay Area. Thanks to the strong economy in the region, demand for office space outstripped supply, leading to higher prices. According to a 2013 report by CBRE, a Fortune 500 commercial real estate company based in Los Angeles, the San Francisco business district (greater downtown area) had 5.7 million square feet of vacant office space and there was a demand for 6.3 million square feet of downtown office space.

What will 2014 look like?

Forecasts for 2014 residential real estate in most of the Bay Area neighborhoods are positive. While sale prices can vary significantly by neighborhood and type of home, on average, home prices are expected to increase by 6-8 percent in 2014. Inventory levels are still tight and are only expected to reach more normal levels by the end of the year or early in 2015. Foreclosures are down and continuing to go down. Mortgage rates show very little change and are expected to stay under 5 percent for the year.

San Francisco is experiencing a net influx into its population ranks. More people are moving in to the city than are migrating out of the city. The opportunity for work in high-paying fields such as technology, banking and insurance, is likely to result in an overall job growth rate of 2 percent for 2014.

San Francisco earns number 1 ranking in real estate

A highly-regarded report entitled Emerging Trends in Real Estate – 2014, was published in 2013 by PwC (PricewaterhouseCoopers) and ULI (Urban Land Institute) that gave valuable insight into the top 20 real estate markets in the United States. San Francisco finished number 1 in the overall rankings.

The study interviewed and surveyed more than 1,000 industry professionals. Included among the respondents were investors, mutual & pension fund managers, developers, property companies, lenders, brokers, advisers and consultants.

Consensus opinion was that San Francisco will continue to be a very good place to invest in both residential and commercial real estate. Private home ownership is expensive, but the prospects are good that prices will continue to rise throughout the year. According to the experts, commercial real estate has the potential to outperform residential real estate (more demand & price appreciation) in 2014.

Respondents were asked to give their opinion on the performance of the different segments of the San Francisco commercial real estate market. The question asked was whether you would buy, hold or sell a particular type of commercial property.

Hotels: 55.6% would buy – 24.4% would hold – 20.0% would sell
Industrial: 54.2% would buy – 37.29% would hold – 8.47% would sell
Retail: 50.8% would buy – 32.5% would hold – 16.7% would sell
Apartments: 49.0% would buy – 20.4% would hold – 30.6% would sell
Office Buildings: 45.0% would buy – 30.9% would hold – 24.2% would sell

If you define a positive outlook on commercial real estate as either buying property or holding on to property you already own, these statistics are clearly bullish for investors.

• Hotel segment: 80% positive outlook
• Industrial segment: 91.31% positive outlook
• Retail segment: 83.3% positive outlook
• Apartment segment: 69.4% positive outlook
• Office building segment: 75.9% positive outlook

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