Los Angeles Market Overview

Vacancies in Los Angeles have been declining since peaking at the end of 2020 and are currently at 3.9 percent. Looking ahead, vacancy is anticipated to rise moderately through 2023 and 2024, as demand will remain modest and is not expected to offset continued supply additions. The most recent transaction activity has shown that investors are quite active in L.A.’s apartment market, despite the city having some of the highest pricing in the entire country. The United to House L.A. measure, also known as the “Mansion Tax” has been approved and will place a tax on high-priced real estate sales (4.0 to 5.5 percent tax on property transfers over $5M-$10M). The measure took effect on January 1, 2023, and will impact transactions purchased after April 1, 2023, meaning investors contemplating a potential property sale have approximately a four-month window to avoid being subject to the new tax.

Market Highlights

• Current construction levels represent 2.8 percent of existing inventory in Los Angeles.
• The Los Angeles County Eviction Moratorium has been extended through March 31, 2023. During this time, landlords cannot evict low-income tenants who say they were financially harmed by COVID-19 and can’t pay rent.
• Rent growth on a year-over-year basis is at 3.2 percent.
• The Los Angeles multifamily market saw sales of $12.4 billion within the past 12 months.

Sales

According to Costar Group, the average market price is $430,000/unit, significantly higher than the national average of $260,000/unit. The average market cap rate is 3.9 percent, sitting lower than the national average of 4.9 percent. The market’s position as the nation’s second-largest metro, diverse economic drivers, and a land-constrained coastal location are critical drivers of the market’s high pricing. The rise in the percentage of properties offering concessions has increased from 7.7 percent in August to 18.5 percent as of the end of December. The expanded use of concessions demonstrates property managers and landlords are seeing softer demand even in suburban areas that are more affordable and/or have less competition from new supply.

Vacancy | Rent | Construction

After record-breaking growth in August 2022, rent rates have steadily declined, but still are some of the highest rates in the country. Asking rents in Los Angeles are currently $2,190 a month, which is one of the most expensive in the nation. Today’s vacancy rate is the lowest in decades and has averaged 4.4 percent over the last 20 years. The market vacancy is predicted to remain near record lows for the upcoming years, due to relatively strong tenant demand. While the supply pipeline is a concern for specific metro submarkets, it should have a limited impact on market-wide occupancy.

Over the last five years, Los Angeles has seen increased construction levels with 27,000 units that must be absorbed in the near to mid-term. Development activity is concentrated in areas more amenable to increased density, such as Downtown Los Angeles and Koreatown. The apartment market increased by 9,000 new units during the past 12 months. Downtown Los Angeles, Burbank, and Koreatown have the most significant number of units currently under construction.