We moved into a new apartment in NYC in the summer of 2009. The previous tenant had a two-year lease at $4500 (struck in July '07). Our rent was $2800.
In the rental market a big driver of the landlord decision cycle is needing, at a minimum, to have a reputable tenant and to cover the cost of carry of the asset (mortgage, etc). In many cases if their cost of carry is met (and that's often a low bar....many landlords in both NYC and SF own their apartments outright, or are paying tiny monthlies on a refinanced mortgage that was originated in the 90's), then the priority is getting a reputable tenant who won't destroy the place or create drama.
If the above paragraph is confusing, basically what I am trying to say is that a landlord often prefers, for example, $3000/month from a tenant who they think is 98% likely to be an "easy tenant" to $3500/month from one who they think is 80% likely to be the same. In other words, there's a market premium on reliable tenants, especially in places like SF that have aggressive tenant-protection laws which make landlords even more antsy.
As layoffs start happening (as they did in the nine months before we signed our lease back in '09) landlords of reliably-paying, drama-free tenants start getting antsy about keeping their current tenant or finding a suitable replacement.
As such, what drives prices in markets like NY/SF isn't just supply-demand equilibrium; there's also a significant behavioral economics angle aspect to it as well, as landlords are willing to pay a premium for peace of mind.
Therefore, I would expect a significant drop in SF rents if layoffs start coming.
This times 100. A bad tenant can cost you tens of thousands of dollars, not to mention peace of mind. I once had one who lied about owning my property to have a 60 year old tree cut down. It was a nightmare (it turned out he had sued his previous landlord in a bogus sexual harrassment and basically extorted a hundred grand from an elderly woman).
I would much rather have someone who pays less, but is financially and mentally stable. So yeah, rents will drop pretty fast once the market softens.
SF in particular is a unique market because you have one population that is hell bent on staying here, and another that is primarily here for work opportunities. The latter population will clear out pretty quick once the work starts to dry up.
In the rental market a big driver of the landlord decision cycle is needing, at a minimum, to have a reputable tenant and to cover the cost of carry of the asset (mortgage, etc). In many cases if their cost of carry is met (and that's often a low bar....many landlords in both NYC and SF own their apartments outright, or are paying tiny monthlies on a refinanced mortgage that was originated in the 90's), then the priority is getting a reputable tenant who won't destroy the place or create drama.
If the above paragraph is confusing, basically what I am trying to say is that a landlord often prefers, for example, $3000/month from a tenant who they think is 98% likely to be an "easy tenant" to $3500/month from one who they think is 80% likely to be the same. In other words, there's a market premium on reliable tenants, especially in places like SF that have aggressive tenant-protection laws which make landlords even more antsy.
As layoffs start happening (as they did in the nine months before we signed our lease back in '09) landlords of reliably-paying, drama-free tenants start getting antsy about keeping their current tenant or finding a suitable replacement.
As such, what drives prices in markets like NY/SF isn't just supply-demand equilibrium; there's also a significant behavioral economics angle aspect to it as well, as landlords are willing to pay a premium for peace of mind.
Therefore, I would expect a significant drop in SF rents if layoffs start coming.