Downtown S.F.’s condo market is cratering, with units selling at reduced prices

San Francisco’s uneventful post-Covid recovery is tightening the downtown condo market, with landlords increasingly willing to sell at a discount amid ongoing tech layoffs and office closings, according to a report new from Compass real estate brokerage.

Median sales prices of condos in the greater city district and South of Market — which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach — fell 16.5% from a year ago, according to the report. Since December of last year, the median condo sales price has dropped from $1.475 million to $1.23 million in those neighborhoods.

The decrease in median prices in the downtown neighborhoods was twice that of other parts of the city. Outside the city center, the median price of condos fell 7% in the past year, while single-family homes fell 7.5%.

While real estate brokerages tend to be rosy in their marketing materials, the Compass report doesn’t sugar coat the current situation. He concludes that the decline in demand is being driven by a “triple fall of economic, demographic and quality of life issues.”

“I knew that segment of the market was weakened but I didn’t realize the degree to which things had changed,” said Patrick Carlisle, chief market analyst for Compass. “It was a bit shocking.”

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The problems are both macro and micro.

Nationally you have a declining stock market, rising interest rates and inflation. Meanwhile, downtown San Francisco lags other cities in office occupancy, and the lack of foot traffic is hampering small businesses and making streets feel less safe. The highrise houses that sprung up in the South of Triq is-Suq during the last 20 years were intended to serve the hundreds of thousands of workers who flooded into the city every morning. With those jobs gone remote, demand for housing has fallen.

“San Francisco went from being the hottest office market in the world to almost the weakest,” Carlisle said.

Two recent sales reports at Lumina, a two-tower luxury complex on South Market, show how the market has changed, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first involves a 1,791-square-foot, three-bedroom, three-bath unit on the 32nd floor of the tower at 338 Main St. That unit sold for $3.25 million in May of 2016 and then traded from the new in August of 2019 for $3.5 million. In September of this year it hit the block again with a list price of $3.15 million, before finally selling in November for $2.68 million, a decrease of 23.4% from 2019.

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Meanwhile a two-bedroom unit in the same tower is being marketed for $2.6 million, which, if it sells at that price, would represent a 21% reduction from its 2016 asking price of $3.295 million.

While the current market presents an opportunity for buyers, the increase in interest rates to a 20-year high offsets any savings that can be achieved through the lower price point, Carlisle said. But for buyers with cash for a down payment, or those willing to gamble that they will be able to refinance at a lower interest rate down the road, there are opportunities.

“This is a good time for buyers to negotiate extremely aggressively,” he said. “If you see a unit you like just ignore the asking price and decide what you’re willing to pay for it. There are many sellers who just want to move on. If they are able to close a deal, they will, even if it is far below expectations.”

Realtor Kevin Birmingham of Park North Real Estate said the report is consistent with what he is seeing around town. He just sold one condo in the Twin Peaks area that was marketed for $695,000. It closed at $680,000. The seller is expected to get $800,000.

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As such, many potential sellers are looking to rent out their units. “The listings are being retired and going directly to the rental market,” Birmingham said.

Gregg Lynn of Sotheby’s International Realty, who focuses on the luxury condo market, said the optimism of 2021 — when San Franciscans were getting vaccinated and starting to feel comfortable in the crowds again — gave way to uncertainty.

Some families who bought before the pandemic expecting to split their time between San Francisco and wine country or Tahoe have found they don’t have much reason to come to the city. Others bought downtown condos to be near their children and grandchildren, only to have their offspring leave town.

“A lot of our customers aren’t using their condos as much as they thought they would,” he said.

JK Dineen is a San Francisco Chronicle staff writer. Email: [email protected] Twitter: @sfjkdineen

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