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L.A. County Apartment Sector is Feeling the Pressure From Buyers, Renters

Los Angeles County is facing a significant lack of housing product — an issue that can’t be resolved any time soon. With the fight to limit new development, it is a very uphill and challenging battle that is unfortunate for the economy, business and, most of all, residents. An influx of about 160,000 new residents moved to the county from 2010 through 2015, but we have only seen upwards of 25,000 new housing units built during that same time frame. The demand drivers are extremely significant for new housing, but supply constraints like zoning and regulations are preventing an adequate supply. Additionally, with an unemployment rate currently at a historical low of about 4 percent, projections for housing demand over the next decade all point to a severe shortage in this growing region. Despite all the news about companies moving out of state to enjoy less expensive business costs as well as more affordable housing for their employees, this region, along with California as a whole, continues to see a population increase.

Aynsley Armbrust, Stepp Commercial

Aynsley Armbrust, Stepp Commercial

Even with all this being said, the multifamily sector has and will continue to be the darling of the commercial real estate industry as it’s fueled by a lack of supply and significant demand. However, rents can only go as high as the market can bear. Investors are already begrudgingly paying very low cap rates with sub-3 percent cap rates being commonplace in many core areas.

Deal flow this year for apartment properties with five or more units appears to be on par with 2016 for the same period, according to CoStar. By that comparison, the average price per unit is up just 2.83 percent, while average gross rent multipliers are up 3.6 percent.

The market is tightening, and as brokers on the street, we feel it. Buyers are pushing back at the aggressive pricing of 2015 and 2016, while at the same time we see the dichotomy of a burgeoning inventory constraint. With LA County’s lack of new inventory coming online to meet the needs of the general rental population, rents will continue to remain high. Whether they will push higher, time will tell.

By Aynsley Armbrust, Senior Vice President, Stepp Commercial. This article first appeared in the June 2017 issue of Western Real Estate Business magazine.

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