LA Apartment Market Stays Tight, Values Soar
By Kimberly Stepp, Principal, Stepp Commercial
The strength of the Greater Los Angeles apartment market has exceeded expectations coming out of the pandemic. Despite reports of an exodus from California and population decline in the metro, apartment rental demand is seeing an all-time high, with net absorption of units running at its highest level in decades. As a result, vacancy is at a low 3.4 percent, lower than the pre-COVID level of 4.4 percent. Asking rents have seen a 7.7 percent growth over the past 12 months, while the national rate is 11.1 percent. Average monthly asking rents across LA County stand at $2,130, albeit still lower than the median monthly home payment of $2,659.
Los Angeles multifamily market fundamentals remain favorable for investors. The area has one of the highest percentages of renters of any U.S. metro, comprising approximately half of all households. Already hefty housing prices in a highly competitive market have seen even greater increases over the past 20 months, resulting in a median home price of $795,000. This has left a significant part of the population priced out of homeownership.
High construction costs, NIMBY sentiment and onerous permitting continue to plague the ability to deliver desperately needed housing units. Although 9,600 new units were delivered in the past 12 months and 28,000 more are under construction, demand continues to surpass deliveries.
Despite the pandemic’s lingering effects — and omicron delaying the expected return to office for large numbers of employees — the LA area continues to experience significant growth fueled by major technology, entertainment and media companies as they continue to expand operations here. As mask mandates at the state and county levels are rescinded and employees are returning to the office, general economic recovery is in progress, though it is mixed. The unemployment rate for LA County continues to trend downward, standing at about 7 percent.
Los Angeles’ position as the entertainment capital of the world and the increased demand for video streaming and social media has been a boon to the LA economy during the past several years. High-paying jobs for young professionals and demand outpacing supply are what is fueling the apartment market throughout the region. Spurred by these drivers, investors have demonstrated interest in key LA submarkets for apartment acquisitions and development.
While this all bodes well, time will tell how macro-economic factors — inflation, war with Ukraine, gas prices, rising interest rates — will affect us. At some point, markets will more than likely make a correction.