South Bay Multifamily Market Report
Market Overview
The South Bay-Beach Cities market presents a diverse multifamily real estate landscape. While renter demand has faced challenges in recent quarters, there have been modest gains in rental rates over the past year. However, vacancy rates have gradually increased and are expected to continue this upward trajectory for the remainder of 2023. The market has seen limited apartment construction for several decades, with only one significant project currently underway. Despite these trends, the submarket remains attractive to investors due to its prime coastal location, affluent demographics, and appealing restaurant and retail amenities. Moreover, market pricing in the submarket outperforms the Greater Los Angeles apartment average, indicating favorable property values. Overall, the beach cities in South California, including El Segundo, Manhattan Beach, Hermosa Beach, and Redondo Beach, present a unique market with their own dynamics and potential for growth.
Highlights
- Average price per unit is currently $551,000.
- Current average asking rents of $2,596 are higher compared to the Greater Los Angeles apartment market average of $2,226.
- The sales volume for the past 12 months stands at $123 million as of Q3 2023.
- The El Segundo submarket draws in high-income renters due to its attractive employment hub.
Rents | Vacancy | Construction
Apartment rents in the South Bay-Beach Cities market have remained relatively stable over the past year. On a year-over-year basis, rents have experienced a modest gain of 0.4% compared to the market-wide gain of 0.8%. Notably, with an average rent of $2,600 per month, rents in the market are 15% higher than the Greater Los Angeles market average of $2,230 per month. Renter demand in the South Bay-Beach Cities submarket remains minimal as of Q3 2023. Consequently, the vacancy rate has increased by 0.6% in the past 12 months to 4.1%.
The market attracts renters due to its desirable location along the Pacific Ocean. However, home prices in the area are some of the highest in Los Angeles County, making it challenging for many residents to transition into homeownership, creating a larger pool of renters who desire to live there. Despite the challenges, the El Segundo submarket has become an attractive destination for tech and entertainment companies, drawing high-income renters to the area.
The market has experienced little to no development activity for decades. There is currently only one project underway called Legardo Redondo, which involves converting an older hotel into a 115-unit apartment development. It will be one of the largest apartment developments in the area in decades once completed.
Average rents for Class C properties are $2,390 per month, around 40% higher than the metro average, while Class B properties average $2,900 per month, approximately 25% higher than the metro average.
Sales
South Bay, By the Numbers in the Last 12 Months
- Units Under Construction: 115
- Vacancy Rate % Change (YOY): 0.6%
- Asking Rent Growth (YOY): 0.2%
- Average Price Per Unit: $551,000
- Sales Volume: $123M
Sales activity in the South Bay-Beach Cities market has shown positive signs, despite being slightly below historical levels. In Q2 2023, there were nine multifamily properties sold, with a total transaction value of $43.4 million. Although the number of transactions is slightly lower than the five-year average, there have been notable sales that highlight investor interest in the submarket. For instance, in May 2023, a private family trust purchased a six-unit property in Hermosa Beach for $4.5 million, demonstrating confidence in the local market. Similarly, in April, a private buyer acquired a nine-unit property in El Segundo for $4.15 million, utilizing financing from First Republic Bank. These sales showcase the attractiveness of the market and the continued interest from investors seeking opportunities in this coastal area.
