Los Angeles Multifamily Market Report as of September 17, 2023

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Here is an update on the current commercial multifamily market in Los Angeles County, CA:

Softer apartment market conditions in Los Angeles persist in the third quarter of 2023. Net absorption during the past 12 months, 3,500 units, is well below the 9,600 units absorbed during the same 12-month period one year ago. Renters remain cautious in the face of economic uncertainty and inflation. Demand was also insufficient to absorb the 12,000 net new units added during the last 12 months. As a result, vacancy increased from 4.0% one year ago to 4.8% today.

Modest renter demand has resulted in restrained rent growth in the third quarter. Compared to the same time a year ago, rents have seen gains of 0.7% during the past 12 months. Concessions data in recent months suggests landlords and property managers are getting more concerned about attracting renters to their properties. The percentage of properties with over 25 units that provided concessions in August was 25%, near its highest rate since the first half of 2021. Significant upward pressure on rents is unlikely in the near term.

With 22,000 units under construction, representing 2.2% of inventory, and moderate tenant demand anticipated through the remainder of the year, metro-wide vacancy is expected to rise further in the near term. The impact of construction in the near term will disproportionately affect the locations with elevated pipelines. Over 20% of the units set to complete in the Greater Los Angeles apartment market during 2023 are in two submarkets, Downtown Los Angeles and Koreatown, which comprise only 10% of existing inventory in Greater Los Angeles. In contrast, many other locations in the metro will face limited supply pressures.

Based on conversations with local multifamily sales brokers, the increase in debt costs and tighter lending standards have impacted transaction activity since the second half of 2022. Many buyers and sellers have different expectations for pricing. Sellers want the peak pricing seen in the first half of 2022. On the other side, buyers seek a discount, given higher debt costs making it more difficult to achieve targeted investment returns.

Since 23Q2, the market has faced another headwind, an additional transfer tax imposed on property transactions above $5 million that began April 1 in the City of Los Angeles (see sales section for more information). The number of properties that traded the second quarter of 2023, 280, was well below the 630 properties that traded quarterly, on average, during the past decade. Dollar volumes during the quarter, $865 million, were the lowest seen during a quarter since 2011. The additional costs could suppress near-term transaction volume and add downward pressure to asset values within the City of L.A.

Here are several graphs illustrating the current commercial multifamily market in Los Angeles county:

Access exclusive multifamily market reports in Los Angeles county submarkets here: http://lamultifamily.manuelangeles.com/

Data includes: Sale price per unit distribution, cap rate distribution, cumulative sales volume by year, months to sale, recent significant sales, vacancy rates, market rent per unit, construction deliveries/demolitions, economy, job growth. population growth, and Los Angeles county sub-market activity.

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