Market Overview

Is San Francisco Real Estate Losing Steam?

Is San Francisco Real Estate Losing Steam?

  • Slowing growth in the tech world could be partially to blame for the slowdown in the San Francisco real estate market.
  • Apartment REITs are better-positioned to withstand a downturn than many office REITs are.
  • Hotel RevPAR in the region will likely contract, but is projected to remain 6-8 percent above the national average.
  • The San Francisco apartment, hotel and office markets have been on fire since the Great Recession, but the most recent data from the region could be a sign of trouble ahead.

    Here’s a look at what the new trend it could mean for investors.


    According to Morgan Stanley analyst Vance Edelson, the slowdown in the tech IPO market could be to blame for relatively weak office vacancy rate numbers in the San Francisco area. Office absorption tends to closely track the IPO market, and Morgan Stanley has seen a slowdown in both in recent months.

    Related Link: REIT ETFs Become Buyback Beneficiaries

    Edelson believes that investors should be cautious and choosy when it comes to office REITs with exposure to San Francisco, and names Columbia Property Trust Inc (NYSE: CXP), Paramount Group Inc (NYSE: PGRE) and Boston Properties, Inc. (NYSE: BXP) as its top picks.


    Edelson sees a bit more wiggle room when it comes to apartment REITs. “We think favorable supply/demand would persist even if the current approximately 145 thousand job growth [in 2016/2017] forecast were to be cut in half,” he explained.

    Morgan Stanley’s top San Francisco apartment REITs are Essex Property Trust Inc (NYSE: ESS) and Monogram Residential Trust Inc (NYSE: MORE).


    Not only has hotel revenue per available room (RevPAR) been on the decline recently in San Francisco, it has also been extremely volatile. In the past three months, San Francisco RevPAR has experienced 40-50 percent swings week-to-week.

    Credit Suisse analyst Ian Weissman offered one simple solution for the swings: Several major events scheduled for San Francisco in coming months have switched calendar dates lately, which has a major impact on RevPAR.

    Overall, Weissman believes San Francisco RevPAR will continue to come in above the rest of the nation's, but he believes the premium in coming years will decline from around 13 percent to the 6-8 percent range.

    Top San Francisco-exposed hotel REITs include Ashford Hospitality Trust, Inc. (NYSE: AHT), DiamondRock Hospitality Company (NYSE: DRH) and Starwood Hotels & Resorts Worldwide Inc (NYSE: HOT).

    Disclosure: The author holds no position in the stocks mentioned.

    Image Credit: Public Domain

    Latest Ratings for CXP

    Jun 2020Morgan StanleyMaintainsEqual-Weight
    May 2020Morgan StanleyMaintainsEqual-Weight
    Apr 2020Goldman SachsUpgradesNeutralBuy

    View More Analyst Ratings for CXP
    View the Latest Analyst Ratings


    Related Articles (CXP + PGRE)

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