While U.S. Apartment Rents Stall, San Francisco Market Accelerates

While apartment rents cool across much of the country, San Francisco is breaking away from the pack, with artificial intelligence‑fueled hiring and chronic undersupply pushing the city’s multifamily market back into high-growth mode.

National rent growth flatlined as a wave of supply met with flagging demand and a lack of consumer confidence, but San Francisco moved in the opposite direction, posting an 8.4% surge that far outpaced every other major U.S. metro, according to Apartments.com.

“San Francisco is benefiting from the opposite dynamic seen in many high-growth Sun Belt metros, where aggressive development pipelines created supply pressure,” said Eve Myers Loecher, senior managing director for Newmark. 

Occupancy has climbed back above 96%, average rents are around $3,400, and the city’s limited construction pipeline — just 300 market‑rate units underway — is tightening conditions even further. 

Brokers and investors say the combination of high‑wage AI job creation, severe land and entitlement constraints, and years of underbuilding set the stage for continued rent escalation, even as Sun Belt markets struggle to digest tens of thousands of new units.

“San Francisco has limited new supply, limited availability for new construction and renewed demand from a high-wage employment base,” Myers Loecher said. “These factors allow San Francisco to support sustained rent growth as many newer low-barrier markets digest their excess inventory.”

Elevated supply, particularly across the Midwest, led to soft 0.6% annual rental growth in Q1 2026, Apartments.com reported. During that same time, rent growth in San Francisco skyrocketed, climbing 8.4% and far outpacing San Jose at 4.9%, the next-highest market in the nation for rental rate escalation.

“San Francisco remains the No.1 conviction market in the country,” Myers Loecher said. “The city continues to benefit from a durable combination of high-income employment and structural housing under supply.”

San Francisco’s multifamily market has moved from post-pandemic stabilization to reacceleration, Myers Loecher said.

In 2020, average rent in San Francisco was approximately $2,800, with occupancy in the low 70% range. Average rents in the city in June stood at $3,429 per month, with rents for a two-bedroom apartment topping $4,670, Apartments.com reported.

Average monthly rents in more desirable neighborhoods, such as Dogpatch, Nob Hill and Pacific Heights, are north of $4,100.

Occupancy, meanwhile, was at 96.3% percent in Q1, according to Newmark. That’s in stark contrast to Sun Belt cities such as San Antonio, Memphis and Austin, which led the nation in vacancy with between 13% and 16% dark apartment doors in Q1, Apartments.com reported.

High vacancy led to sharp declines in asking rents as well. Rents in Austin and San Antonio have dipped nearly 3.3% due to nagging oversupply and soft tenant demand. Austin has led the nation in negative rent growth since 2023 following construction of 54,000 new apartment doors — 20% of the Texas capital’s total apartment inventory at the time — in Q1 2023. 

In San Francisco, the imbalance of supply, renewed office utilization by AI companies employing thousands of high-earning renters and significant development challenges have pushed rents to historic highs.

And they are likely to go much higher, Myers Loecher said.

“We're steadily outpacing the 15-year average income-to-rent ratio, and Bay Area rents have the potential to increase by 20% as housing demand grows,” she said.

AI workers aren’t the only demographic that finds San Francisco a desirable place to live, said Bay Area native David Nelson, regional president of brokerage for Northern California and Nevada for Kidder Mathews. 

“The fact that we are land constrained and building supply constrained means that any renewed interest in living or working in San Francisco means rents skyrocket instantly,” Nelson said. 

Rising rental rates often make it easier to underwrite new housing projects, but the near- and medium-term response from developers is likely to be muted, Myers Loecher said. The pipeline of new apartment doors is at its lowest level in 15 years due to high construction costs, affordable housing inclusionary requirements, lengthy entitlement timelines and financing constraints.

There are just 300 new market-rate apartment units currently under construction in San Francisco, according to Newmark. 

“Rents would need to grow about 20% to 30% to support new construction at scale,” Myers Loecher said. “We need to see a continued escalation in rents in order for developments to pencil.”

Past development cycles transformed large swaths of aging San Francisco neighborhoods, particularly Mission Bay North, which was redeveloped into nearly 3,000 new market-rate and affordable apartments, along with the $1.4B Chase Center.

However, the lack of cranes against the city skyline portends the future for any new apartment doors that would ease housing pressures. Large redevelopment projects, such as demolishing the former California Pacific Medical Center building or repositioning nearby 3333 California St., inch forward but are years away from completion.

Major issues hampering new development are high acquisition costs and limited sites for redevelopment, Nelson said. Converting old low-story motels into mid-rise apartment buildings and up-zoning existing single-story retail parcels for multifamily development could lead to increased housing density in a city starved for new apartment doors, he added.

“You have to get creative,” Nelson said. “Tearing down a hospital is not an easy thing to do to rebuild apartments and housing, but it needs to be done.” 

Capital is beginning to underwrite continued rental recovery, but investment is focused mostly on assets with clear upside and a compelling basis relative to replacement costs, Myers Loecher noted. Investors have reiterated that San Francisco is their primary investment market, she added.

“It feels meaningfully healthier than it did 12 to 24 months ago,” she said. “With the high income-to-rent ratios, AI-driven demand and a constrained supply, there's a lot of reason to feel very optimistic about future growth here in San Francisco.”