Commercial Real Estate Market Report: Self-Storage in Los Angeles County, CA

[Manuel Angeles]

Market Overview

The Los Angeles self-storage market showed signs of stabilization in Q1 2024 after experiencing some softening in 2023. The market vacancy rate held steady at 11.6% compared to Q4 2023, while asking rents declined slightly by 0.5% quarter-over-quarter to $234 per unit. Despite recent challenges, Los Angeles continues to outperform the broader Western region, which had a higher vacancy rate of 11.9% and lower average asking rent of $178 per unit in Q1 2024.

Asking and Effective Rent

Asking rents in Los Angeles decreased marginally by 0.5% in Q1 2024 to $234 per unit, following a more substantial 2.8% decline in Q4 2023. This suggests the rate of rent decline is slowing. Effective rents mirrored asking rents at $234 per unit, indicating limited use of concessions. Climate-controlled units commanded a premium, with asking rents of $271 per unit compared to $234 for non-climate-controlled units. Los Angeles rents remain well above the Western regional average of $178 per unit for non-climate-controlled and $191 for climate-controlled units.

Competitive Inventory, Employment, Absorption

New inventory additions slowed in Q1 2024, with only 969 units delivered compared to over 1,000 units per quarter throughout 2023. The market absorbed 664 units in Q1 2024, a positive sign after negative absorption in the latter half of 2023. However, this was below the 5-year average annual absorption of around 5,000 units.

Employment growth is forecast to be modest at 0.9% in 2024 and 0.5% in 2025, which may limit demand growth. Population growth is expected to be flat over the next few years, potentially constraining household formation and storage demand.

Market Outlook

The Los Angeles self-storage market is projected to improve gradually over the next few years:

• Vacancy rates are forecast to decline from 11.6% in 2023 to 10.5% by the end of 2024 and further to 9.4% in 2025.
• Asking rents are expected to grow by 1.0% in 2025 and 1.2% in 2026, a turnaround from the slight decline projected for 2024.
• New supply is expected to moderate, with inventory growth slowing from 5.4% in 2024 to just 0.5% in 2025.

While the market faces near-term headwinds from slow economic and population growth, the moderation in new supply and gradual absorption of existing inventory should support improved market fundamentals over the next 2-3 years. Investors and operators should monitor employment trends and household formation as key demand drivers going forward.

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