Los Angeles Multifamily Market Report as of July 18, 2023

[Manuel Angeles]

Los Angeles Multifamily Market Report
As of July 18, 2023

Greetings,

This is Manuel Angeles with Exp Commercial.

Here is an update on the current commercial multifamily market in Los Angeles, CA.

Softer apartment market conditions in Los Angeles persist in the third quarter of 2023. Net absorption during the past 12 months, 780 units, is well below the 9,700 units absorbed during the same 12-month period one year ago. Renters remain cautious in the face of economic uncertainty and inflation. Demand was also insufficient to absorb the 11,000 net new units added during the last 12 months. As a result, vacancy increased from 4.0% one year ago to 5.0% today.

Modest renter demand has resulted in rent growth stalling in recent months after seeing slight gains at the beginning of 2023. Compared to the same time a year ago, rents have seen gains of 0.7% during the past 12 months. Concessions data in recent months suggests landlords and property managers are getting more concerned about attracting renters to their properties. The percentage of properties with over 25 units that provided concessions in May and June, 25% and 23%, respectively, is at its highest since the first half of 2021. Significant upward pressure on rents is unlikely in the near term.

With 24,000 units under construction, representing 2.3% of inventory, and moderate tenant demand anticipated through the remainder of the year, metro-wide vacancy is expected to rise further. The impact of construction in the near term will disproportionately affect the locations with elevated pipelines. Over 30% of the units set to complete in the Greater Los Angeles apartment market during 2023 are in two submarkets, Downtown Los Angeles and Koreatown, which comprise only 10% of existing inventory in Greater Los Angeles. In contrast, many other locations in the metro will face limited supply pressures.

Based on conversations with local multifamily sales brokers, the increase in debt costs and tighter lending standards have impacted transaction activity since the second half of 2022. The number of properties that traded the second quarter of 2023, 290, is well below the 630 properties that traded quarterly, on average, during the past decade. Many buyers and sellers have different expectations for pricing. Sellers want the peak pricing seen in the first half of 2022. On the other side, buyers seek a discount, given higher debt costs making it more difficult to achieve targeted investment returns.

Several local brokers have said many buyers expect a 10-20% discount relative to recent peak pricing. Transactions closing often see discounts in pricing compared to what were likely achieved in early 2022. As another headwind for property sales, the City of Los Angeles and Santa Monica imposed additional transfer taxes in early 2023 for residential and commercial properties above certain values (see sales section for additional detail). The additional costs will likely suppress near-term transaction volumes and add downward pressure to asset values.

Here are graphs illustrating the current capital market of commercial multifamily in Los Angeles:







Access the full Los Angeles multifamily market and capital market reports:

Market Report: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/11... 

Capital Markets Report: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1... 

Please contact me if you:

• Have any questions, comments, or concerns regarding the commercial multifamily market in Los Angeles
• Would like to receive markets reports in another county for multifamily, retail, office, industrial, or hospitality properties
• Request a complimentary comparable market analysis and accurate valuation report for your commercial property 
• Need assistance in purchasing, selling, or exchanging commercial property

Schedule a time for a call or meeting with me here. 
We are here to help you achieve your investment goals.
I look forward to being of service.
Thank you.

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Best Regards,

Manuel Angeles
Broker Associate
CalDRE #01985856
Mobile: [phone]
Email: [e-mail]

Exp Commercial of California, Inc.
CalDRE #02134436  
Office: [phone], ext 300
Website: www.expcommercial.com
Address: 2603 Camino Ramon, Ste 200, San Ramon, CA 94583
  
| Commercial Real Estate Brokerage: Multifamily, Retail, Office, Mixed-Use, Industrial, Hospitality, Self-Storage, Land |