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Cooler apartment market conditions in Los Angeles persist in the first quarter of 2024. Net absorption during the past 12 months, 4,900 units, was below the 8,000 units absorbed, annually, on average during the past decade. Weak leasing activity was driven by economic uncertainty and continued outmigration from the metro. Demand was also insufficient to absorb the 11,000 net new units added during the past 12 months. As a result, vacancy increased from 4.6% one year ago to 5.0% today.

Modest renter demand amid a moderate supply pipeline has resulted in rents declining since a recent peak in late August. Rents market wide are essentially at the same levels seen a year ago. Concessions data in recent months suggests landlords and property managers are concerned about attracting renters to their properties. The percentage of properties with over 25 units that provided concessions in November was 27%, its highest rate since June 2021. Significant upward pressure on rents is unlikely in the near term.

The current construction pipeline has 23,000 units underway, representing 2.3% of inventory. Levels are moderate on a market-wide basis and a relative-size basis compared to other U.S. metros, most of which have more robust development activity. The impact of construction in the near term will disproportionately affect the locations in Greater L.A. with elevated pipelines. Over two-thirds of the units set underway in the Greater Los Angeles apartment market are in 10 submarkets, accounting for around 40% of existing units in the metro. Downtown Los Angeles and Koreatown are first and second, respectively, based on total units underway. In contrast, other locations in the metro will face limited supply pressures.

11100

12 Mo. Delivered Units

4933

12 Mo. Absorption Units

5.0%

Vacancy Rate

0.1%

12 Mo. Asking Rent Growth

$4.7B

12 Mo. Sales Volume

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Based on conversations with local multifamily investment brokers, the increase in debt costs and tighter lending standards have impacted transaction activity since the second half of 2022. Several investment sales brokers have said buyers in many transactions expect anywhere from a 5-25% discount relative to early 2022 pricing, given higher debt costs make it more difficult to achieve targeted investment returns. Many recently sold properties are seeing pricing below what would have been achieved in early 2022, with some sales trading for less than their previous transaction prices.

Since 23Q2, the market has faced another headwind, an additional transfer tax imposed on property transactions above $5 million that began April 1 in the City of Los Angeles (see sales section for more information). The number of properties that traded in the fourth quarter of 2023, 310, was well below the 610 properties that traded quarterly, on average, during the past decade. Dollar volumes during the quarter, $1.3 billion, were some of the lowest levels seen during a quarter since 2011. The additional costs could suppress near-term transaction volume and add downward pressure to asset values within the City of L.A.

 

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