Rent and Operating Trends – Week of September 17th 2023
September 19, 2023
- Category: Los Angeles
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As multifamily fundamentals have been deteriorating nationwide, performance in the second largest U.S. city has been mediocre in recent months. While many key operating metrics declined over the past 12 months, Los Angeles is holding its own and its declines are modest. L.A. is not growing like its Gateway peer markets in the Northeast and Midwest, yet it’s also not declining like San Francisco. L.A. apartment demand remains steady, and the construction pipeline is well established but not overly aggressive. The continued outmigration caused by the expensive cost of living will continue, and the current strikes in Hollywood will likely have a negative impact on the apartment market. Long term however, Los Angeles will remain a cornerstone market with steady apartment performance.
Los Angeles boasts some of the highest levels of traffic and leases signed among the six Gateway markets, indicating demand is holding up. Occupancy and NER have declined over the past year, and trail both the national average and their peer group. Yet absolute occupancy is higher than most other markets nationwide. These trends are keeping the Los Angeles multifamily market afloat, as the national slowdown in apartment demand impacts the market tangentially.
Traffic and Leasing
The average apartment across the L.A. metro receives 7.7 tours per week, and on average 2.8 new leases signed each week. The market-wide conversion ratio of 36% makes it one of the most efficient leasing markets in the nation.
Traffic is strongest in the Laguna Hills submarket, followed closely by Marina Del Rey/Venice and Irvine. These submarkets all average 15 or more tours per property per week.
Laguna Hills has been one of the most sought-after submarkets of the past year, as traffic has more than doubled in the past 12 months. The submarket also leads L.A. in new leases signed, averaging 5.6 new leases per property each week.
South Anaheim and West Covina/La Puente are also doing well from a leasing perspective, as the submarkets are averaging five and four new leases per week respectively.
Los Angeles’ average occupancy rate is 94.6%, nearly a half percentage point above the national average. Gateway markets tend to have higher occupancy rates than secondary and tertiary markets, and Los Angeles is holding true to that phenomenon.
Occupancy has fallen 1% from this time last year, and while it’s hard to categorize declining occupancy as a good thing, in comparison to other markets, L.A. is holding steady.
Suburban submarkets Fullerton, South Glendale/Highland Park and Tustin boast the highest occupancy in the metro, with average properties maintaining 95.8% occupancy or higher. Fullerton has picked up 71 basis points of occupancy over the past month, a sign of good things to come, as we leave the prime rental season.
Santa Monica is struggling, as occupancy currently sits at 90.2%, well below the market and national averages. As one of the most expensive submarkets in the nation, Santa Monica has seen residents relocate over the past year, leading to an average occupancy decline of 3.6% year-over-year.
ATR across the metro remains tight, and the average number of units available to rent is 13 per property.
Mar Vista/Culver City has the highest ATR in the market, with the average property experiencing 31 units available. Santa Monica also has a high number of units available, and both submarkets have seen their ATR increase by at least 300% in the past year.
Net effective rent across the metro is down 80 basis points on a year-over-year basis, however the market has performed well recently. In the past month, rents are up 70 basis points.
With an average rent of $2,941, L.A. is the sixth most expensive market in the nation.
There are several submarkets where NER is increasing, led by Tustin. The southeastern submarket has enjoyed 10.9% rent growth year-over-year as demand for suburban housing remains high. South Glendale/Highland Park and Laguna Hills have also seen rents increase 5.3% over the past year.
Concessions have been increasing in L.A., rising 25% from this time last year. Santa Monica leads all submarkets with average concessions of $355 per month.
L.A. maintains an active construction pipeline with just under 400 properties currently under construction across the metro.
Development is heavily concentrated west of Downtown, in Koreatown, Westlake, Silverlake and Hollywood. There are also pockets of development in Santa Monica, Culver City, and in the Valley west of Glendale.
There will be some limited new supply pressure, especially in submarkets where development is clustered, however the long-term impact of new supply will be modest across the metro.
When adding in projects currently in planning, the new supply pipeline expands to over 1,000 properties. Given the current interest rate environment I expect many of these projects to fall out of the pipeline, but those that come to fruition will add significant new supply to West Hollywood, Beverly Hills, Pasadena, and Santa Monica.
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