San Francisco’s supply of new condos is quickly dwindling as buyers snap up homes on the market.
The city is down to less than 500 new condos available for purchase — a 34 percent plunge compared with this same time last year, according to Polaris Pacific, a condo marketing and research firm.
“There’s not a lot to sell in San Francisco at the moment,” said Miles Garber, vice president of research for Polaris Pacific.
Several projects are close to selling out all of their units such as Stage 1075 in Mid-Market, CIM Group’s One Mission Bay, and Tishman Speyer’s Lumina, a 665-unit SoMa highrise complex that is down to its final penthouses.
Some new projects have entered the market in the past year and are starting to sign contracts with prospective buyers such as Related California’s The Averyand Tishman Speyer’s Mira, but buyers can’t close on their purchases until the buildings are complete.
So far, in 2018, at least nine large condo developments sold out includingTrumark Urban’s 76-unit the Pacific in Pacific Heights, Oyster Development’s 259-unit Rockwell near the Van Ness corridor, and DM Development’s 815 Tennessee in Dogpatch.
“We were at the time the only project selling in Dogpatch and there was a tremendous amount of pent-up demand from people who wanted to live in that area,” said Mark MacDonald, CEO of DM Development.
Meanwhile, the pipeline of new projects is slowing down, Garber said. Next year, developers will deliver around 300 new condos to the market.
The city hit a peak in 2008 when 2,069 new condos were delivered. In 2017, 584 condominium units were completed.
Garber said activity will pick up again in 2020 and 2021 with an average of 800 homes slated for completion during those years.
While the number of new condos drops, prices are ballooning, Garber said, because of the rising costs to build housing in San Francisco. Costs such as city fees, affordable housing requirements and contractor fees are all going up, which makes only ultra-luxury housing financially feasible.
During the past few years, developers could still make money selling condos for $1,300 to $1,400 per square foot.
Prices in 815 Tennessee ranged from $777,000 for a one-bedroom to $1.76 million for a three-bedroom averaging roughly $1,500 per square foot.
“We sold out very quickly at prices above our proformas,” MacDonald said. “When we built 815 Tennessee, construction costs were maybe 30 percent lower than they are today.”
In CIM Group’s One Mission Bay, homes have sold from $582,000 for a studio up to $3.95 million for a three-bedroom home. The 350-unit project started selling homes in April of 2016 and is down to about two dozen units.
“It has gotten more difficult to do deals like (815 Tennessee) moving forward,” MacDonald said.
His firm just broke ground on 1515 Union St., a 41-unit boutique building in Cow Hollow that will feature impressive views in a prime location with little new housing. Prices in that project will likely be upwards of $1,800 per square foot.
Ironically, even though housing prices and demand in San Francisco are both robust, developers can’t make money unless they target the very high-end, MacDonald said.
In contrast, ultra-luxury projects start around $2,000 per square foot and often go even higher. Some homes in Jay Paul Co.’s 181 Fremont have been selling for $4,000 or $5,000 per square foot.
Some new ultra luxury projects under construction include John Buck Co.’s One Steuart Lane, which started work over the summer, and 706 Mission St., which will hit the market branded as a Four Seasons Private Residences.
“Demand is strong now, but as we move into 2019, we’re going to have a raft of initial public offerings, which is presumably going to make demand even higher,” MacDonald said. “There are very well-heeled buyers who are very eager to own a piece of these highly desirable locations.”