Why Are Owners Holding On?

Simple—because investors love making money, and these buildings are doing just that.

The rental market in San Francisco remains strong. Rents are stable, vacancies are low, and landlords are seeing solid returns. In 2025, the most common reasons for selling include rising insurance costs, non-insurability, retirement, or increased taxes from transfers and inheritance. Some owners are also simply tired of the rental business and regulations.

However, for the majority, selling just isn’t that attractive right now.

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Strong Rental Income = A Hedge Against Inflation

Multi-unit buildings provide steady cash flow and serve as an effective hedge against inflation. Since the market isn’t at a peak, owners don’t have the same urgency to sell as they might in a boom cycle.

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Interest Rates & Cap Rates—A Challenge for Both Buyers and Sellers

One of the biggest reasons transactions have slowed is the relationship between interest rates and cap rates. Higher interest rates negatively impact property values—lowering prices and making selling less appealing unless an owner is truly exiting the market.

For buyers, the math doesn’t always work. If a building offers a 6% return (cap rate) but borrowing costs are at 7%, the deal doesn’t pencil out. Pricing has to reflect the cost of borrowing, and that’s been a sticking point.

A few years ago, financing was available in the 3.5%–4.5% range. Today, depending on the building and the borrower's qualifications, rates hover around 6% or higher. As a result, San Francisco has seen a rise in all-cash transactions or buyers putting down 50% or more to make deals work.

Recent data on cap rates for San Francisco 5+ unit apartment building sales shows a sharp increase since mid-2022, with 2024 reaching its highest annual reading in over 16 years. Historically, cap rates were in the 3.8%–4.8% range from 2014–2021, but have now climbed to 6.1% in 2024, making financing dynamics even more challenging for buyers.

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Limited Inventory = Fewer 1031 Exchange Opportunities

Another key factor? There isn’t much to trade into. Many sellers typically look to exchange one property for another through a 1031 exchange to defer capital gains taxes. But with limited inventory, attractive exchange options are scarce, making sellers more hesitant to list.

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The Bottom Line

San Francisco’s multi-unit market isn’t flooded with listings because owners are still making money, and selling isn’t as lucrative as it was when rates were lower. Unless there’s a compelling reason to exit, most investors are holding tight.

For buyers, this means fewer choices and tougher competition. For sellers, it means pricing must align with today’s financing realities to attract serious offers.

That said, it wasn’t so long ago that property values were much higher. Investors who have a long-term perspective on San Francisco believe in the city's value and are patient. The last few years have been challenging, but San Francisco is rebounding quickly, and the momentum of recovery is already underway.

Thinking About Buying or Selling in Today’s Market? Let’s Talk.

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