Los Angeles, CA Multifamily Market Report

Market Overview

Los Angeles has a diverse and vast economy, with significant contributions from the entertainment, tourism, international trade, fashion, and aerospace industries. However, the market experienced softer conditions in Q2 2023. The demand for apartments has been modest, resulting in low net absorption and an increase in vacancy rates. Rent growth has stalled, and landlords are offering concessions to attract renters. Construction activity remains high, with a significant number of units under construction, particularly in Downtown Los Angeles and Koreatown. Transaction activity in the market has been impacted by higher debt costs and tighter lending standards, leading to fewer properties being traded compared to previous years. Overall, the Los Angeles market is facing challenges with limited demand, increased supply in the face of economic uncertainty and inflation.

Highlights

• The Los Angeles multifamily market saw sales of $7.5B within the past 12 months.
• Average rent levels in the region have reached $2,226 per month.
• Average price per unit year-over-year is currently $344K.
• The tighter submarkets, particularly in the San Fernando Valley, have lower vacancy rates and more affordable rental prices, while more expensive submarkets like Downtown Los Angeles and Santa Monica have higher vacancy rates.

Rents | Vacancy | Construction

Approximately 95% of the net units added in the past decade were in higher-end 4- and 5-Star communities, and the current construction pipeline is also predominantly focused n 4- and 5-Star projects.

Los Angeles apartment rent growth has slowed down compared to previous years, with year-over-year gains of 0.8 percent as of Q2 2023. The increase in apartment availabilities has led property managers to offer more concessions, with 23 percent of properties providing concessions in June, one of the highest levels since early 2021. Additionally, vacancy rates have increased from a two-decade low of 3.8 percent in Q1 2022 to 4.9 percent. In the past 12 months, Los Angeles has delivered 11,588 new units, representing a growth of just over one percent in apartment inventory. Moreover, there are currently 23,641 units under construction, which comprises 2.3 percent of the existing inventory. While development levels in Los Angeles are below the national average of 5.6 percent, restrained construction activity is expected to result in more modest increases in vacancy compared to many other markets.

Sales

The 12-month sales volume for Los Angeles is $7.5 billion, higher than the historical average of $6.6 billion for multifamily assets. Further, the average transaction prices in the Los Angeles market have declined from a peak in Q2 2022, dropping from over $380,000 per unit to $344,000 per unit in Q2 2023. Some sellers are still holding out for the higher prices seen in early 2022, while buyers are anticipating a 10 to 20 percent discount compared to early 2022 pricing, due to the rise in debt costs. The recent implementation of additional transfer taxes has also put downward pressure on transaction volumes and asset values.

Los Angeles by the numbers last 12 months

• Units Under Construction: 23,641
• Units Delivered: 11,588
• Vacancy Change (YOY): 1%
• Average Asking Rent: $2,226
• Average Price/Unit: $344K
• Sales Volume: $7.5B