LA Apartment Occupancy Dips, But Rents Expected to “Skyrocket”
Los Angeles’ multifamily market lost a bit of steam in the third quarter, but a bounceback might not be far off.
Occupancy dipped 40 basis points year-over-year, while rents fell 0.2 percent from the previous quarter, the L.A. Business Journal reported, citing Colliers.
Still, L.A. is a bright spot, outperforming nationwide trends. The city boasts 94.9 percent occupancy compared to the 93.2 percent across the country.
Current Market Trends
Occupancy and Rent Prices
The slight decrease in occupancy and rent prices stem from shifts in supply and demand rather than “fundamental issues,” Colliers senior executive vice president Kitty Wallace told the outlet. Wallace also cited slowing population growth due to this year’s immigration raids in Los Angeles.
The downtown and Hollywood/Mid-Wilshire submarkets are partially to blame for the sagging numbers. Downtown occupancy is at 92.9 percent, while Hollywood/Mid-Wilshire is at 94.1 percent. Before the pandemic, developers were on a construction spree downtown in the hope of revitalizing the commercial center. But overbuilding, combined with the hollowing-out of downtown post-pandemic, became a problem.
Impact of Overbuilding
“Downtown didn’t come back, and all that brand new product had just been built,” Wallace said, noting that Hollywood and Koreatown faced similar trends over the past decade.
That glut could soon reverse, however. With developers wary of Measure ULA’s transfer tax and uncertain financing conditions, an impending construction cooldown could tighten the market.
Future Market Outlook
Construction and Delivery
Developers started 2,554 units last quarter, while 5,292 units were delivered.
“That’s a good amount for Los Angeles,” Wallace said, though she noted that it isn’t sustainable as developers pause or shelve entitled projects.
Developers shouldn’t be afraid of putting shovels in dirt right now, however.
Expected Rent Increases
“If you’re breaking ground today, and your property is [delivered] in 18 months to 36 months, that’s when all of the entitlements that are here are going to be usurped,” she said. “And for all those units, the absorption will have taken place, and our rents are going to skyrocket.”
Under its housing element, the City of Los Angeles must plan for 456,643 new housing units by 2029, with 184,721 of those being designated for affordable housing.
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Conclusion
The Los Angeles multifamily market is experiencing a temporary dip in occupancy and rent prices due to shifts in supply and demand. However, with an impending construction cooldown and a shortage of new units, rents are expected to skyrocket in the near future. Developers who start construction now can expect to benefit from the tightening market and increased demand.
FAQs
Q: What is the current occupancy rate in Los Angeles?
A: The current occupancy rate in Los Angeles is 94.9 percent.
Q: What is the expected outcome of the construction cooldown?
A: The construction cooldown is expected to tighten the market and lead to increased rents.
Q: How many new housing units must the City of Los Angeles plan for by 2029?
A: The City of Los Angeles must plan for 456,643 new housing units by 2029, with 184,721 of those being designated for affordable housing.
