With red-hot growth in rents and absorption, Los Angeles is an active participant to the biggest burst of multifamily rent growth in decades.
Asking rents in Los Angeles have increased 7.0% year-over-year as of August, the metro’s highest rate of growth since May 2016, according to Yardi Matrix. That makes the metro part of a national wave that has produced average asking rent growth of 10.3%, which is the highest rate of increase for the U.S. since Yardi began collecting data in the 1908s. (The data measures asking rents for vacant units and not renewals, which average smaller increases.)
Demand for all types of housing is high as the nation emerges from the Covid-19 pandemic. Ripe conditions for both the single-family and multifamily markets have been created by the combination of strong job growth, healthy consumer finances and personal savings, investor demand for rentals, and pent-up household formation as young people leave their parents’ homes post-pandemic.
The resulting demand for apartments has pushed the occupancy rate of stabilized properties up by 1.1 percentage points to 95.6% year-over-year in Los Angeles as of July. During that time the national average occupancy rate of stabilized properties rose 90 basis points, also to 95.6%.
In the year ending June 2021, apartment absorption in Los Angeles totaled 14,200 units, which ranked fifth in the nation on an absolute basis. Absorption has outstripped new supply, which totaled 13,000 units in the 12 months through mid-year 2021, a 2.7% increase in total stock. New inventory growth is expected to remain strong as 28,000 units are under construction, per Matrix.
Los Angeles has added 530,000 jobs since the trough in April 2020 but remains 500,000 jobs below the 6.3 million pre-pandemic peak set in February 2020, according to the Bureau of Labor Statistics (BLS). The entertainment industry is an example of the partial recovery. Total employment in motion picture and sound recording is up nearly 50% year-over-year to 308,500 as of July, but the sector remains well below its pre-pandemic level of 441,000.
Investor demand for multifamily remains keen, although transaction volume fell somewhat in the first half as bid-ask spreads between buyers and sellers remains wide. Between January and June 2021, $1.1 billion of multifamily properties traded in Los Angeles, which is on pace to match the $2.1 billion of sales in 2020 but remains far below the $5 billion pre-pandemic peaks in 2018 and 2019, according to Matrix.