A developer is planning more than 300 apartments in downtown San Francisco, a rare project for a region battling land constraints and rent control restrictions.
San Francisco developer Martin Building Company filed a proposal for a 303-unit apartment complex at 1101 Sutter St, among the largest housing projects proposed for the downtown area over the past decade, according to CoStar data.
Downtown San Francisco is one of the country's tightest land constraint markets, according to CoStar data. Just 110 units have been completed over the past decade in the area that's largely built out, data shows.
Very few apartments have been proposed in the area in recent years; one such project is a 21-unit project at 850 Bush St proposed in 2021. The market counts 24,000 units across 1,500 buildings, according to CoStar, trailing its neighboring areas by upwards of 100,000 units.
Downtown San Francisco's vacancy rate is at a five-year low of 6% after peaking at 10% in 2020, according to CoStar data, and those vacancies could nudge lower as the area sees its population growth resume after taking a dip during the pandemic. The start of this year brought the first positive net migration to the city's downtown in several years, according to a CoStar analysis.
Areas such as Chinatown and Nob Hill have seen the largest increase in population growth in recent months.
Lack of New Supply
The area's newest proposal aims to replace a century-old funeral home with a 400,000-square-foot apartment building. The plans are a larger version of a prior iteration filed by Martin Building Company in 2022, when the company envisioned 221 units.
The developer is now tapping density bonus laws to increase the scope of the project. The newly enacted SB 1287 allows for developers to increase their projects by up to 100%.
The property was last sold in 2019 for $10 million, according to CoStar data. Of the over 300 proposed units, 38 of them are planned to be affordable, typically defined as units reserved for renters earning less than 80% of the area median income.
Downtown San Francisco has strict rent control measures that have kept rent growth stagnant, coupled with a lack of new supply in the market, according to CoStar data. Rents have increased just 0.5% over the past year to $2,690 per month, trailing the market average of $3,070, up 2% year-over-year.
“Historically, downtown San Francisco's comparatively older inventory could not draw the higher rental rates achieved at new apartment buildings in areas such as South of Market or Mission Bay,” according to a CoStar analysis.
New or higher-end apartment buildings in the area appear to be in demand with such projects nearly fully occupied, according to CoStar data.
San Francisco is expected to see additional housing proposals in the coming years as the city works to meet state-mandated housing goals. The Bay Area’s largest city is required to build 80,000 homes by 2031, the third most in the state behind Los Angeles and San Diego.