Lower-cost submarkets on solid footing. Amid a period of household budget tightening, local apartment fundamentals point to strong demand for discounted rentals. During the first half of 2024, Class C vacancy declined in half of Los Angeles’ 20 submarkets and held firm in two, allowing overall lower-tier vacancy to remain unchanged over this span at 4.2 percent. Demand for budget-friendly units, however, extends beyond the households that slot into the Class C renter pool. Collective vacancy in the 12 submarkets with an overall effective rent below the metro average was 4.7 percent in June — a rate 60 basis points below the other eight areas’ combined vacancy. East Los Angeles, Van Nuys-Northeast San Fernando Valley, and Southeast Los Angeles lead the group of lower-cost submarkets, as each entered July with vacancy at or below 4.0 percent.
Supply wave approaches. The January-to-June stretch of 2024 marked a pullback in local supply additions, with the number of deliveries representing the lowest tally since 2018. While completions pick up moderately during the second half, inventory will increase by just 0.3 percent. The lull in deliveries, however, will be shortlived. Upward of 17,000 units are scheduled for 2025 completion, with nearly 20 percent in Mid-Wilshire. That said, an influx of apartments appears warranted here, as Mid-Wilshire’s Class A vacancy rate fell 50 basis points to 4.3 percent over the past year.
CONSTRUCTION
8,514 units completed
• Rental stock grew by 0.7 percent over the 12-month span ended in June, matching the gain from the prior four-quarter period. More than half of the units added over the past year were in Greater Downtown Los Angeles.
• Outside of this area, just one submarket — Palms-Mar Vista — recorded inventory growth of at least 1 percent.
VACANCY
60 basis point increase in vacancy Y-O-Y
• Renters absorbed a net of 1,220 units over the past year after relinquishing a total of 12,630 apartments during the prior 12-month stretch. Still, vacancy reached 5.1 percent this June — the highest rate since early 2011.
• Mid-Wilshire, Hollywood, and the CBD, which compose Greater Downtown Los Angeles, noted increases ranging from 30 to 100 basis points.
RENT
0.4% decrease in the average effective rent Y-O-Y
• Rising vacancy across 14 of the metro’s 20 submarkets over the past year acutely impacted local rent growth. The metro’s average effective rate dipped as a result, reaching $2,792 per month in June.
• Greater Downtown Los Angeles registered one of the most pronounced rent declines, with its average falling 2.7 percent to $2,844 per month.
Investment Highlights
• Los Angeles recorded the most multifamily transactions among major U.S. markets by a wide margin over the yearlong period ended in June. This occurred in spite of a 15 percent year-over-year decline in deal flow. Class C trades accounted for 90 percent of sales activity during this stretch.
• One-third of these Class C closings were in the San Gabriel Valley, Long Beach, Southeast Los Angeles or Greater Inglewood. Private investor competition for these typically sub-$5 million listings should remain strong, as the relatively lower rents they command make them highly desirable among a sizable cohort of renters. Additionally, the approval of SB 1211, which authorizes up to eight detached ADUs to be created on a lot with an existing multifamily dwelling, may enhance the appeal of smaller complexes with excess or underutilized land.
• Measure ULA continues to impact trading velocity in Los Angeles proper. While the tax has motivated more buyers to look outside the city for opportunities, some may not fully re-engage with the local marketplace until voters decide on Proposition 33. If approved, the measure would allow California cities and counties to impose rent control on all apartments.
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