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May 20, 2024
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L.A. County Rental Housing Market Exits the Pandemic with Strong Demand


This report was provided by real estate services firm NAI Capital

Market Overview

The vacancy rate for multifamily housing in Los Angeles County fell to 3.3% in the second quarter of 2022, down 10 basis points quarter over quarter and 120 basis points year over year. Strong demand for rental housing due to the lack of affordability of single-family homes for sale along with steady gains in employment continued to propel LA County’s multifamily housing post pandemic.

The median sale price for existing single-family homes in Southern California hit $830,000 in June of 2022, up 8.4% from last year, according to the California Association of Realtors. In LA County, the median sales price in June was $860,230 up 8.1% from last year. The statewide eviction moratorium, which was put in place March of 2020 to September 30, 2021, and extended through January 31, 2022, along with rent regulations, now lifted did not negatively affect occupancy as predicted.

The average rent continued rising to new heights, up 6.7% year over year to $2,091 per unit per month. Sales volume year to date increased 47.1% from the second quarter of 2021 and construction increased 3.1% compared to this time last year, as demand from investors and developers remained strong.

Strong economic conditions have pushed multifamily market fundamentals to record-breaking levels. Inflation has caused concern that the economy is becoming overheated. In June, the national rate of inflation hit a 40-year high of 9.1%, housing, which is included in the measure, saw a 5.6% increase from the prior year.

Trends to Watch

Rental rate growth, well above inflation, has kept investment in multifamily housing going strong. However, Federal Reserve officials, to curb inflation, are expected to keep raising interest rates until inflation cools. Investment sales will respond accordingly to the rise in interest rates. Irrespective of the effect of rising interest rates, market fundamentals showed solid demand in the rental market.

In LA West, vacant units declined 29.2% from the second quarter of 2021 – the largest drop in the LA County year over year. Rent increased the fastest at 7.2% from a year ago to an average of $2,592 per unit. The median sales price per unit registered $423,148 per unit, up 5.3% year over year. In the South Bay, vacant units declined 28.1% from the second quarter of 2021. Rent increased 5.6% from a year ago to an average of $1,813 per unit, stimulating a 57.3% rise in units under construction year over year. The median sales price per unit registered $295,455 per unit, up 5.5% year over year. In Central LA, vacant units dropped 20.2% and rent grew 5.7% over the same time frame. In LA North, vacant units dropped 26.3%, rent grew 7.1%, and sales volume skyrocketed 165.8% year over year with more than $1.5 bil trading hands.

With strong economic drivers, demand for multifamily housing will continue to be robust. High inflation and interest rates hikes will impact investors as they adjust to a changing financial landscape

Supply and Demand Trends

Multifamily net absorption depicted the momentum change that happened since second quarter of 2021. Quarter over quarter absorption outperformed supply added to the market, completed construction. From the second quarter of 2021 to the second quarter of 2022, completed construction totaled 15,089 units and positive net absorption totaled 36,632 units.

Sales Trends

The average cap rate dipped 20 basis points from the previous quarter, down 40 basis points year over year to 3.9%. Year to date sales volume in the first half of 2022 totaled more than $8.1 mil, increasing a record-breaking 46.3% from H1 2021. Second quarter 2022 sales volume totaled more than $4.3 bil, up 15.1% from Q1 2022.

This report was prepared by:

J.C. Casillas
Managing Director, Research
NAI Capital Commercial Research

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