Housing Dynamics Signal Long-Term Tailwinds as Sector Exits Record Demand Stretch
After vacancies plunged to historic lows for many parts of the country in 2021, rates have trended up in the first half of 2022 as inflationary impacts and broad economic headwinds slowed household creation. While these near-term challenges will persist, last year’s stellar performance and longer-term shifts in living preferences position the sector at large to withstand some obstacles.
9,405 Units Completed
Supply additions in Greater Downtown Los Angeles accounted for 40 percent of countywide completions over the yearlong interval ended in June
Greater Downtown Los Angeles remains the epicenter of local development, as more than 15,400 rentals were underway at the onset of July. These apartments account for half of the metro's active pipeline.
150 Basis Point Decrease in Vacancy Y-O-Y
Availability compressed by triple-digit basis points in 11 of 17 submarkets and across all property classes during the recent 12-month span, lowering metro vacancy to 2.6 percent in June.
Renters absorbed 9,350 units in Greater Downtown Los Angeles over the last four quarters, reducing local availability to 3.2 percent.
17.0% Increase in the Average Effective Rent Y-O-Y
The average effective rent rose by nearly $400 over the past year, climbing to a mean of $2,695 per month. Submarkets with rates below $2,000 per month include Antelope Valley and East and South Los Angeles.
Coinciding with a 220-basis-point drop in vacancy, Greater Downtown Los Angeles' average monthly rent rose 20.5 percent to $2,856.
Transactions in Los Angeles County accounted for more than one-fourth of all sales recorded across primary U.S. markets during the 12-month period ended in June, as local deal flow rose by 16 percent. The metro’s active Class C investment sector is largely to credit. Within this segment, California-based private buyers are competing for listings in submarkets where vacancy is extremely tight and returns above the metrowide average of 4.1 percent remain available.
A high percentage of Class C trades involve properties with fewer than 20 units. Of late, transactions of this distinction have been most frequent in Long Beach, Greater Inglewood and Southeast Los Angeles — locales where lower-tier vacancy hovers between 0.8 percent and 1.6 percent, and pricing below $300,000 per unit remains frequent. Across these areas, minimum yields can dip below 3 percent. However, 5 percent-plus cap rates are also common.
A high volume of Class B trades also involve sub-20-unit complexes, with these properties trading at a low-4 percent average rate of return. Investors are most active in San Fernando Valley cities, including Glendale and North Hollywood, where mean pricing is nearing $400,000 per door.