Market Report: Multifamily in Los Angeles County, CA
Market Overview
The Los Angeles apartment market is comprised of 864,197 units in thirty-seven geographic concentrations ranging in size from the 62,684 unit Hollywood/Silver Lake submarket to the Tujunga/La Crescenta/Montrose submarket, which amounts to 5,448 units. In the ten-year period beginning with Q2 2014, the Downtown submarket has experienced the greatest introduction of new inventory, 19,373 units, amounting to 21.7% of all new market rate rentals added to the market.
Asking and Effective Rent
After finishing April with no change, asking rents climbed by 0.3% to $2,381. Mean unit prices in the metro are as follows: studios $1,687, one bedrooms $2,168, two bedrooms $2,730, and three bedrooms $3,384. Over the past twelve months, asking rents have fallen a total of 2.7%, down from $2,446. Since the beginning of Q2 2014, the metro as a whole has recorded an annual average increase of 4.5%. Effective rents, which exclude the value of concessions offered to prospective tenants, climbed by 0.2% during May to an average of $2,286. The asking rent growth rate decline of 2.7% observed over the past 12 months compares unfavorably to the long-term performance of the metro, and rent growth deceleration has been shared broadly among the Los Angeles metropolitan area's thirty-seven apartment submarkets.
Competitive Inventory, Household Formations, Absorption
The first quarter added 6,770 net new households to the Los Angeles MSA. Of course, not all newly formed households immediately become apartment renters, but an analysis of longer-term economic and demographic trends can be useful in understanding the current quarter's level of demand. Since the beginning of Q2 2014, household formations in Los Angeles have averaged 0.2% per year, representing the average annual addition of 7,800 households. During May, net absorption totaled 52 units, while there was no new development; the net effect of absorption and construction dynamics caused the vacancy rate to remain unchanged. Over the last 12 months, market absorption totaled 6,376 units, 17.7% lower than the average annual absorption rate of 7,750 units recorded since the beginning of Q2 2014. In a long-term context, May vacancy rate is 0.3 percentage points higher than the 3.8% average recorded since the beginning of Q2 2014.
Outlook
REIS' new construction analysts report that 12,219 units of new speculative apartment inventory will be introduced to the metro by the end of the year, and net total absorption will be positive 3,047 units. In response, the vacancy rate will drift upward by 0.3 percentage points to 4.4%. During 2025 and 2026, construction activity under surveillance is projected to deliver a total of 21,982 units. Net new household formations at the metro level during 2025 and 2026 are projected to average 0.6% annually, enough to facilitate an absorption rate averaging 10,964 units per year. The market vacancy rate will finish 2025 at 4.6% and will fall 0.3 percentage points to 4.3% by year end 2026. Between now and year-end 2024 asking rents are expected to climb 1.6% to a level of $2,420, while effective rents will increase by 1.5% to $2,321. On an annualized basis, asking and effective rents are projected to rise at a rate of 3.0% through year end 2026, reaching average rates of $2,569 and $2,462 per unit, respectively.
Comments