On Sunday, San Francisco and Kansas City face off in Super Bowl LVIII. While on the field there’s not much difference between the 49ers’ 12-5 record and the Chiefs at 11-6, these contenders differ greatly in commercial real estate.
Super Bowl LXIV, in 2020, was the last championship featuring these teams. Then, San Francisco was at the peak of a tech-led wave of growth, while Kansas City was following a more conservative path forward, with modest but steady growth in its well-established industries.
The Chiefs defeated San Francisco in 2020, months before COVID-19 sent the City by the Bay’s property markets into a downward spiral.
Notwithstanding the outcome of Sunday’s rematch, how do each city’s commercial real estate market match up? CoStar analysts have crunched the numbers.
Multifamily
Kansas City:
Kansas City is in the top 10 markets for rent growth and rents are at an all-time high. Demand has slowed from the record pace, with new supply outpacing demand, pushing vacancy to 15-year highs. A strong labor market should help keep things moving in a positive direction. This year is projected to have above-average completions, potentially leading to another year of supply outpacing demand.
San Francisco:
The San Francisco multifamily market has continued to steadily improve over the past three years. After losing thousands of residents during and in the wake of the pandemic, vacancy shot up. Since then, the market has seen 12 quarters of positive absorption, and the metropolitan area’s vacancy rate is now at its lowest level since the first quarter of 2020. However, rent growth over the past year was flat, and the market’s average monthly rent remains below where it was in 2019. Construction activity is subdued, but developers continue to move projects through the planning process, in expectation that an improving economic environment will allow them to break ground in the quarters ahead.
Advantage: San Francisco
Retail
Kansas City:
Record-low availabilities across the region have pushed rents to new highs. Some local companies are expanding to other parts of the country, such as Chicken N Pickle, Rally House, and Hawaiian Brothers. Tight conditions are projected to continue across the market. Development remains stunted and good sites with blighted buildings are being targeted by retailers.
San Francisco:
San Francisco has seen a continuation of the generally weaker operating performance that has characterized the retail market for the past few years. Despite strong income growth, negative net migration away from San Francisco has reduced the total amount of the retail spending, leading to low levels of leasing, negative net absorption and falling rents. Generally, local urban strips and grocery-anchored centers on the Peninsula have outperformed downtown San Francisco, where the exit of retailers from Union Square and the Financial District has impacted vitality and viability.
Advantage: Kansas City
Office
Kansas City:
Heavy occupancy losses have led to a record-high availability rate. In this lower-cost market speculative construction is less common and has limited further downside risk from being over-supplied. Available space has peaked in recent quarters, led by a decline in sublet space, with some leased, while others are pulling space off the market. There is potential for conversions to remove some older office stock, but those projects are moving slowly.
San Francisco:
The scale of the downturn in San Francisco's office market is extraordinary both in historic terms and by comparison to other major metropolitan areas across the nation. Triggered by the pandemic, the adoption of "work-from-anywhere" models by tech companies increased the vacancy rate from one of the lowest in the nation to the highest, and office rents have fallen by 25%. Moreover, a cyclical downturn has led to layoffs in the tech sector, a pullback of expansion plans and high interest rates. Investment pricing has fallen sharply, led by distressed properties struggling under the weight of mortgages that were taken out at the peak of the market. On a positive note, leasing interest has increased in the past few months, led by AI companies.
Advantage: Kansas City
Industrial
Kansas City:
Though demand is down from a record pace recently, Kansas City has a vacancy rate below the national average. Demand has come from e-commerce, the auto industry and manufacturing. Build-to-suit projects have kept the construction pipeline elevated. Panasonic is building an EV Plant and Meta has a 1 million-square-foot data center under construction and Ace Hardware has a 1.5 million-square-foot distribution center under construction. Slowing speculative development will give landlords time to fill new buildings, with deliveries set to fall by 50% in 2024.
San Francisco:
San Francisco is seeing a continuation of the trends that characterized 2023, with low levels of leasing, vacancy rising and moderate rent growth. The flex market has been impacted by a sharp drop in venture capital funding for the biotech sector and an all-time high of new construction, causing vacancy to escalate. The logistics segment is generally stable, though the slowing economy has caused tenants to pull back their expansion plans.
Advantage: Kansas City
Verdict: Kansas City wins
But since this game isn’t played over four hours this Sunday, and instead, plays out over months and years, don’t write off San Francisco The market has bounced back before, and some are saying that, with rents and prices now at their lowest for a long time, the city is poised for growth, again.