USC Forecasts Continued SoCal Rent Gains

Posted on December 13, 2021

Manhattan Beach PierPaul Fiorilla, Yardi Matrix

Despite heightened out-migration, the Southern California apartment market should continue to see strong rent growth over the next year due to the strong economy boosted by increasing spending on consumer goods, according to a newly released report by the USC Lusk Center for Real Estate.

The center’s 2021 Multifamily Forecast Report current growth forecast call for rents to rise over the next year in each of the 23 submarkets it analyzed, with growth of at least 5.0% in 15 of the 24 submarkets. The current one-year forecast growth is led by Irvine (15%), with 10% increases forecast for the San Diego Inland, Simi Valley, Oxnard-Ventura, and Palm Springs-Indio submarkets.

Those numbers are high by historical standards, but they represent a moderation from recent form. Rent growth mushroomed starting in the spring of 2021 in Southern California – in line with decades-high rent growth nationally. Indeed, year-over-year through October, asking rents increased by 18.5% in Inland Empire, 17.5% in Orange County and 9.8% in Los Angeles, according to Yardi Matrix.

The report noted that the U.S. economy was boosted by the growth in household real disposable income and pent-up spending coming out of the pandemic when people were locked down and delayed spending on consumer items. The rapid growth in goods spending has had a particular economic impact in Southern California, whose ports handle 40% of the consumer goods that enter the country. Container traffic at Southern California ports most months in 2021 have exceeded 2019 volume, the report said.

“The combination of increasing demand for goods, overstretched global manufacturing sector, a supply chain at capacity and falling labor supply means that we see inflationary pressures we haven’t seen in years,” the report said.

Although the forecast was generally bullish, it did come with some caveats related to migration patterns. The pandemic and work-from-home trends, the growing expense of urban submarkets has prompted a “large-scale move” from center cities to suburbs. That has shifted demand from cities such as downtown Los Angeles to the submarkets in the outskirts of the metro, the report said. Apartment vacancy rates have dropped to 2% or less in San Gabriel Valley, Simi Valley, Palm Springs-Indio, Oxnard, North City San Diego, Chula Vista National City and Chino Rancho Cucamonga submarkets.

Another caveat is the loss of population from migration out of state. California has lost population in recent years – something that started long before the pandemic – to less expensive states including Texas, Arizona, Nevada and Washington, the report noted.

The report said that rising cost of owning a home (the Case-Shiller Index found home prices rose 23% between February 2020 and August 2021) will make renting more competitive and contribute to the growth in rents.

More CGI+ News & Press

Gidi Cohen’s CGI+ plans 20 stories of apartments in Hollywood

Gidi Cohen’s CGI+ plans 20 stories of apartments in Hollywood

CGI+, the investment and development firm founded by Gidi Cohen, has filed updated plans for a major apartment complex in central Hollywood. The project would be located at 1830 North Cahuenga Boulevard, at the corner of Cahuenga and Franklin Avenue, a prime Hollywood location a few blocks north of the Hollywood Walk of Fame.

read more
Best Bosses | Here are Real Estate Forum’s picks for Best Bosses in 2023.

Best Bosses | Here are Real Estate Forum’s picks for Best Bosses in 2023.

The last year has not been easy for the head of a commercial real estate company. Inflation and the Fed’s response, as well as trends that emerged from the pandemic, have clearly had an impact on the industry across all of the sectors. Besides the effect of, say, ongoing remote work on the beleaguered office asset class or the slowing pace of rent increases in multifamily, these executives have also had to navigate an increasingly difficult capital markets environment. I have some bad news for this group: the near-term future doesn’t look any easier. Enter our selection of Best Bosses this year. This year’s picks were made at least in part based on their resiliency and ability to position their companies for future growth, whenever that might occur. We are confident these strengths will see them through what could be choppy waters ahead.

read more