Data Courtesy of CoStar™
Los Angeles apartment market conditions appear close to turning a corner. Renter demand during the past 12 months, 7,200 units, was below the 8,100 units absorbed annually, on average, during the past decade. Economic uncertainty, the actors' and writers' strikes, and continued outmigration by residents drove weaker renter activity in the first half of 2023. Demand was insufficient to absorb the 9,000 net new units completed.
However, renter activity has improved since the second half of last year, with vacancy holding in a narrower range, around 5%, since June. Inflation has tempered from a year ago, and the strikes facing the entertainment sector have resolved. Higher-income renters seeking top-tier apartments have been the greatest drivers of activity. As a result of improved renter demand, asking rents, presently $2,260/month, have bottomed and seen gains resume this year.
The construction pipeline comprises 23,000 units, representing 2.2% of existing inventory. The impact of supply in the near term will disproportionately affect locations in Greater L.A. with elevated construction activity, like Downtown Los Angeles and Koreatown. Around 45% of units underway are in five submarkets, accounting for around 25% of the metro's existing units. In contrast, other locations will face limited supply pressures. Eleven of Greater L.A.'s 36 submarkets, which comprise over 20% of Los Angeles' apartments, have construction levels as a percent of inventory of 1% or less.
12 Mo. Delivered Units
12 Mo. Absorption Units
Vacancy Rate
12 Mo. Asking Rent Growth
12 Mo. Sales Volume
Based on conversations with local multifamily investment brokers, the increase in debt costs and tighter lending standards have impacted recent transaction activity. Several investment sales brokers have reported that buyers in many transactions expect a 15-30% discount relative to early 2022 pricing, given that higher debt costs make it more difficult to achieve targeted investment returns. Many recently sold properties are seeing pricing below what would have been achieved in early 2022.
Since 23Q2, the market has faced another headwind, an additional transfer tax imposed on property transactions above $5 million that began April 1, 2023, in the City of Los Angeles (see sales section for more information). Market-rate multifamily units in the city account for over half of all market-rate units in Los Angeles County.
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