Data Courtesy of CoStar™
Los Angeles apartment market conditions remain stable. Vacancy has held in a narrow range since the first half of 2023, and renter demand has improved. However, stronger activity compared to 2022 and 2023 still represents among the most modest renter demand, relative to market size, recently seen among major U.S. metros. However, the market has had the saving grace of one of the most measured completion schedules nationally.
Relative economic softness, particularly job losses in the entertainment and tech sectors, and outmigration by residents continue to weigh on overall conditions. However, analyzing recent demand by asset quality demonstrates diverging renter activity. Higher-income renters seeking top-tier apartments have been the most significant driver of activity. More affluent renters have been better able to weather economic adversity and have contributed relatively less to outmigration than lower- and middle-income households. Unfortunately for many owners, lower-to-middle-income households comprise the lion's share of the renter pool.
One silver lining for local landlords is that they have encountered one of the most measured delivery schedules seen on a relative-size basis among U.S. apartment markets. Within the metro, the impact of the new additions was uneven. Five submarkets with the greatest percentage unit growth during the past year saw around 50% of all new units. Those locations accounted for only 20% of existing units in Greater L.A.
12 Mo. Delivered Units
12 Mo. Absorption Units
Vacancy Rate
12 Mo. Asking Rent Growth
12 Mo. Sales Volume
Recent renter demand has kept pace with the units added. Vacancy, presently 5.1%, has held largely steady since the first half of 2023. The greater demand for higher-quality units has resulted in vacancy by quality segment trending in different directions since the middle of 2023. Vacancy in 4 & 5 Star properties, while the highest at 9.0%, is down from a recent high of around 10% in 23Q2. In contrast, occupancies in 1 & 2, and 3 Star properties eroded during this period.
Cooler renter activity has resulted in minimal rent changes in recent quarters. Year-over-year, rents moved by 0.8%. 4 & 5 Star properties underperformed, with changes of 0.5%, driven by vacancy, despite recent improvements, being highest in this segment. 1 & 2 Star properties saw annual growth of 0.9%, however momentum has moderated in the past several months. Outmigration and financial constraints weigh on household formation for lower-quality apartments, limiting landlords' abilities to increase rents.
Looking ahead, market fundamentals are expected to improve. The outlook anticipates steady, positive renter demand in 2025. The pace of deliveries will cool due to the moderation in construction starts. The forecast calls for vacancy to reach around 4.8% by late 2025. Given this outlook, rent growth is forecast to accelerate, with annual growth surpassing 3% in the second half of 2025.
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