Friday, May 28, 2010

How Google Impacts SF Rental Housing Stock

Does Google, whose headquarters are in Palo Alto, CA, have any real impact on the value of property in San Francisco? Most would think no, especially if we don’t own a spectacular luxury home that some tech exec would want to snatch up. But, the answer is actually yes, Google does impact property values: the value of multi-unit residential income properties. And so does Yahoo!. And so does Apple. Let’s look at how.

Google, Yahoo! and Apple all offer their employees a shuttle service from various locations in San Francisco to their corporate campuses. Shuttle stop locations are based on employee feedback of where in San Francisco they most want to live and on how easy the location is for the shuttle buses to access. These two factors have raised apartment rents in areas that otherwise would lag behind tonier blocks in specific neighborhoods. It is often an unsuspected boon to multi-family property owners, who then see their market rate rents (what prospective tenants are willing to pay) soar.

Take Pacific Heights, for example. Six years ago, finding a rental on the east side of Fillmore Street was comparatively easier and cheaper than finding one to the west. With elegant lobbies, large units (often exceeding 850 sq ft), and elevator service in most buildings, the multi-unit properties between Jackson and California streets on the east side of Fillmore historically catered to “dog owner” renters taking advantage of lower rents and proximity to Lafayette Park. That changed when shuttle commute began. The Google shuttle pick-up at the corner of Gough and Sacramento streets has changed the rental dynamic of Pacific Heights, producing a lower vacancy rate, faster turnover, and higher rents than the east side of Fillmore has seen in the last 5 years. A friend who left her Franklin Street (at Sacramento St) apartment 5 years ago was paying $1800 per month. Today, the same building is boasting a similar unit for rent floor for $2450, 26.5% higher, despite the soft economy. Rental rates on both sides of Fillmore Street these days are equal. Sales of multi-unit buildings in this area are now relatively non-existent: the last building to sell near the Lafayette Park Google shuttle with more than 5 units was back in 2007.

This type of market shift has happened all over the city. Relocation agents have told me that new Google employees overwhelmingly state that being within a 10 minute walk to a shuttle is their primary housing objective. As employees saturate their own shuttle areas, demand forces Google to improve service by adding shuttle locations. Google last year added 3 shuttle stops in San Francisco. Each time a new shuttle stop is established, it has a positive impact on income property revenue within a 4-6 block walking radius.

When investing in a multi-unit income property, it is important to research not only the property’s current financials, but also who your potential renters will be. Are you close to a hospital? A university? A Google or Yahoo! shuttle stop? How close is the commercial corridor and public transit? Answering these questions can help you determine the desirability of your location, estimate future income, and minimize the risk of your long-term investment.

1 comment:

Jo said...

I think most people would agree that when investing in a multi-unit income property, it is important to research not only the property’s current financials, but also who your potential renters will be.