A Landlord’s Market

Supply has yet to catch up with demand in the Los Angeles multifamily market, boosted by ongoing household formation and steady hiring, all in the context of a high barrier to homeownership.

The metro’s business-friendly environment and well-educated, specialized labor force are drawing more companies to the region, while placing the local economy at the top of the most productive large U.S. cities for GDP growth. Education and health services led employment gains year-over-year as of May with the addition of 18,600 jobs, followed by professional and business services (13,600 jobs) and leisure and hospitality (12,700 jobs). The construction industry is also thriving (9,300 jobs), sustained by large-scale projects underway, including the $2.6 billion NFL stadium in Inglewood, the $4.9 billion people mover tram at Los Angeles International Airport and the $1.5 billion Lucas Museum of Narrative Art.

Investors seeking market stability and property value appreciation pushed the multifamily transaction volume to a cycle peak in 2018, when more than $5.4 billion in assets traded. In the first half of 2019, nearly $1.2 billion in properties traded, both Lifestyle and RBN. Meanwhile, development activity remained strong, with more than 26,500 units underway as of June. Absorption is expected to keep up, leading to 3.5% rent growth in 2019.

Rent Trends

▀ Rents in Los Angeles rose 3.2% year-over-year through June, just under the 3.3% national growth rate. The metro’s average rent stood at $2,226, well above the $1,465 U.S. figure. Los Angeles’ overall occupancy rate was 96.4% as of May, down 30 basis points year-over-year. The occupancy rates in stabilized assets for metro L.A. and the San Fernando Valley, as both had a high number of new units delivered in 2018, have been dwindling in recent years, reaching 96.1% and 96.6%. However, occupancy in Eastern Los Angeles County has stabilized, holding at 96.6% throughout the year.

▀ Rents in the working-class Renter-by-Necessity segment rose 4.3% to $1,907, while Lifestyle rates increased by 1.8%, to $2,927. Multifamily demand is strong for both asset classes, bolstered by steady household creation and job gains in high-paying industries, while single-family home prices remain unaffordable for many average earners. We expect the metro’s average rent to rise 3.5% in 2019.

▀ Most of the submarkets that saw the highest rent growth year-over-year were in Eastern Los Angeles County, with West Long Beach topping the list (up 9.2% to $1,716), followed by Azusa/Monrovia (up 8.5% to $1,902) and Rowland Heights (up 7.5% to $1,743). The submarket with the fastest growth in San Fernando Valley-Ventura County was Calabasas, where the average rent rose 9.0% to $2,516, while in Los Angeles, the average rent in Beach Cities saw the quickest growth (up 6.7% to $2,430).

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