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Downtown SF’s condo market is cratering, with units selling at reduced prices

San Francisco’s sluggish post-COVID recovery is hammering the downtown apartment market, with owners increasingly willing to sell at a discount amid ongoing tech layoffs and office closings, according to a new report from real estate firm Compass.

Median sales prices for condos in the greater downtown and South of Market districts — which include Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach — are down 16.5% from a year ago, according to the report. Since last December, the average condo sales price has dropped from $1.475 million to $1.23 million in these neighborhoods.

The decline in median prices in central districts was twice as high as in other parts of the city. Outside the city centre, the median price of apartments fell by 7% in the past year, while detached houses fell by 7.5%.

While estate agents tend to be rosy in their marketing materials, the Compass report does not sugar coat the current situation. It concludes that the drop in demand is driven by “a triple tangle of economic, demographic and quality-of-life issues.”[ads1];

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

The problems are both macro and micro.

On a national level, you have a falling stock market, rising interest rates and inflation. Meanwhile, downtown San Francisco lags behind other cities in terms of office occupancy, and the lack of foot traffic cripples small businesses and makes the streets feel less safe. The high-rises that sprouted south of Market Street over the past 20 years were meant to serve the hundreds of thousands of workers who flooded into the city each morning. With these jobs removed, the demand for housing has decreased.

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

Two recent reports of sales at Lumina, a two-tower luxury complex south of 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-bathroom unit on the 32nd floor of the tower at 338 Main St. This unit sold for $3.25 million in May 2016 and then relisted in August 2019 for $3.5 million dollars. In September of this year, it hit the block again with a listing price of $3.15 million, before finally selling in November for $2.68 million, a 23.4% drop since 2019.

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

While the current market presents an opportunity for buyers, the rise in interest rates to a 20-year high outweighs whatever savings 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’ll be able to refinance at a lower rate down the road, there are options.

“This is a great 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 a lot of sellers who just want to move on. If they’re able to close a deal, they will that, even if it is far below expectations.”

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

As such, many potential sellers want to rent out their units. “The listing is being pulled back and is going straight onto the rental market,” Birmingham said.

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

Some families who bought before the pandemic and expected 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 apartments to be near their children and grandchildren, only to have their offspring leave the city.

“A lot of our customers don’t use their apartments as much as they thought they would,” he said.

JK Dineen is a San Francisco Chronicle staff writer. Email: Twitter: @sfjkdineen

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