Broader Economic Recovery and Dispersal of New Units a Boon for Los Angeles’ Largest Regions
Vacancy historically low in downtown and Silicon Beach. Apartment demand in two of Los Angeles County’s largest employment hubs is strong, prior to the full-scale return of professionals to in-office operations, suggesting further improvement in rental performance may be on the horizon. Over the past year ending in March, Greater Downtown Los Angeles and the Westside Cities region each noted vacancy compression of at least 350 basis points, reductions that placed local availability in the low-2 percent band. Sparse vacancy warrants supply additions; however, Greater Downtown will record a decline in completions this year, with Santa Monica the only Westside locale to add more than 500 units. Moderate completion volumes in both regions, coupled with higher-paying job growth, will ensure new units are well received and tight conditions preserved this year.
Suburban appeal reaches record level. Double-digit rent growth and out-of-reach home prices are steering more households to areas with inventories of lower cost apartments that provide residents with quick access to employment hubs. Complexes in the San Fernando Valley and South Bay-Long Beach areas are benefiting. As of April, vacancy in the two locales sat at 1.8 percent and 2.0 percent, respectively. Responding to limited availability, developers will complete roughly 3,400 units across the two regions this year; however, Inglewood is the only city slated to add more than 500 units.
• Confident in Los Angeles’ long-term apartment fundamentals, investors were increasingly active during 2021, translating to a 25 percent boost in annual deal flow. Heightened competition for available listings and strong rent growth throughout submarkets pushed the metro’s average price point up 7 percent to $310,000 per unit. Still, the mean cap rate held in the low-4 percent range for a sixth straight year.
• Record-low Class C vacancy is attracting buyers to the asset class, with many pursuing complexes in Long Beach, Southeast Los Angeles and other areas where lower-tier rent averages below $2,000 per month. Investors seeking 5 percent-plus yields target Koreatown and Greater Inglewood, where per-unit prices below $250,000 are frequent.
• Class B/C closings accounted for the lion’s share of recent sales; however, Class A trading doubled last year, highlighted by transactions involving newer built properties in the San Fernando Valley region.
• A competitive bidding environment for post-1980-built assets is emerging in Los Angeles, Santa Monica and West Hollywood, as complexes of this vintage are not subject to local rent control restrictions.