SF tenants break leases in startling numbers, giving renters upper hand

One in 13 San Francisco renters have broken their lease since the coronavirus stay-home orders went into place nearly 100 days ago, an astonishing out-migration of tenants in the city that could lead to thousands of empty rental units and give renters the upper hand in negotiations.

When measures to fight the coronavirus severely curtailed economic activity nearly 100 days ago, San Francisco landlords were fearful that widespread layoffs and income lost because of the pandemic would result in a wave of residential tenants unable to pay rent.

While that has not happened — only 3% of San Francisco tenants paid no rent in June, and another 2.5% paid partial rent — landlords are instead dealing with an unexpected problem: Rather than not paying, tenants are walking away from leases.

A new survey from the San Francisco Apartment Association found that 7.5% of renters have broken their lease over the last three months. The survey included information from 292 landlords who own 10,329 apartments, about 6% of the city’s total rental units. While the number of broken leases is not a statistic that the multifamily housing industry association has previously tracked, it’s clearly way above normal.

“We don’t have a baseline to compare it to, but I think it’s shockingly high,” said Charley Goss, the association’s policy director. “A pretty substantial group of people are leaving.”

The biggest group of tenants breaking leases in San Francisco are Gen Z workers, those 18 to 25 years old, according to landlord and tenants groups. A new report from Zillow, a marketplace for rentals and home sales, found that some 2.7 million U.S. adults moved in with their parents in March and April, a trend that nationally could lead to $726 million in lost rent this year alone. About 2.2 million of these are Gen Z.

 SF tenants break leases in startling numbers, giving renters upper hand

Generation Z makes up 9.2% of the San Francisco market, according to Zillow, which estimates that the flight of even a small portion of that group from the city could cost landlords $15.4 million this year.

Some of those returning home are keeping their apartments, and many will likely return to the city after the pandemic has subsided and offices reopen.

“It is highly unlikely that all leases will be broken and this full amount would go unpaid, but it serves as a gauge of the potential impact on housing,” the Thursday report said.

J.J. Panzer, a San Francisco landlord and property manager, said that filling these vacant units will be challenging. “Demand is pretty nonexistent right now, and my rental listings are starting to pile up,” said Panzer.

Panzer is working with James Wavro, a broker who specializes in helping landlords land tenants. He said he has rented three units in the last 90 days, far below the four or five a month he typically does.

“The way to go when you have low demand is with a dedicated person who is hustling to make the deal happen,” said Panzer. “I have way more listings than I can show at one time. Way more than I can remember having.”

The impact that the out-migration will have on affordability remains to be seen. The real estate search company Zumper reported earlier this month that rents in San Francisco are down 9.2% year over year. In addition to that, many landlords are giving away free rent — the developer Emerald Fund has given up to 10 weeks’ rent on some units in its three Civic Center buildings at 100 Van Ness, 150 Van Ness and 101 Polk.

Wavro said that the city has pockets of weakness and areas that are doing relatively well. The biggest drops and most aggressive incentive packages can be found in the amenity-rich apartment towers that have popped up in recent years in South of Market, Rincon Hill, Civic Center and Mission Bay, which is currently without two of its main attractions, the Giants and the Warriors.

 SF tenants break leases in startling numbers, giving renters upper hand

“What is getting hit the hardest is the new construction in SoMa, Mission Bay and South Beach,” he said. “Mission Bay is really suffering because there is not much of a neighborhood there yet. It’s become a little bit of a ghost town.”

Rent declines in less dense parts of the city — older neighborhoods likely to have outdoor space and more room to work from home — are not as steep. Wavro recently rented two single-family homes in Noe Valley, each of which rented for $6,500 a month.

Bobby Fallon, who runs Shamrock Moving Storage with his siblings, said his business has returned to pre-COVID-19 levels.

“April was a lost month, but May and June have been as busy as ever, maybe a little busier,” he said.

Fallon said a lot of younger professionals are giving up their apartments and storing their furniture while the pandemic’s uncertainties persist. With workplaces closed and social life stilted by the shuttering of entertainment and night life, “we hear a lot of people say there is no benefit to living in the city right now.”

“They’re giving up their one-bedroom and putting their stuff in storage,” he said. “A lot of them are planning to find a new place when their workplace reopens, but they don’t know whether that will be November or December or next year.”

In addition to the younger folks moving back in with family, some older city dwellers are also relocating to more suburban towns in Marin, the East Bay and Peninsula.

 SF tenants break leases in startling numbers, giving renters upper hand

Joe Tobener, an attorney who represents tenants, said state law doesn’t give tenants much leeway when it comes to breaking leases. Tenants are technically on the hook until the landlord is able to re-rent the unit. Even then if the new rent is lower than the old rent, landlords can go after the lease-breaker for the difference. Only Solano County has passed legislation allowing tenants to get out of a lease if they have to move because of the coronavirus.

“I would say no, most landlords are not letting tenants out of their leases,” he said. “They are going to go after them. At the very least they will keep the security deposit.”

Goss said that a lot of landlords are doing what they can to hold onto tenants: 27% of owners have received requests for temporary or permanent rent reductions, and 21% of owners have granted these requests, according to the apartment association survey.

Correction: This story has been updated to clarify Emerald Fund’s free rent offer and correct the name of one of its buildings, 101 Polk.

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen

Article source: https://www.sfchronicle.com/business/article/SF-tenants-break-leases-in-startling-numbers-15347851.php

This entry was posted in SF Bay Area News and tagged . Bookmark the permalink.

Comments are closed.