IRR-Los Angeles Mid-Year Viewpoint 2015 Local Market Report - Multifamily
Los Angeles continues to have a shortage of housing due to continued population and household formation growth. With median housing prices well above the national average, many residents continue to rent well into their working careers and the demand is strong for multifamily. Although the job market has been improving, income levels have not kept up with increasing housing costs and many residents are forced to be long-term renters. As with other property types, the multifamily market is limited by available land and has not been able to keep up with demand. Vacancy rates continue to be near historic lows while rent continues to increase.
Many residents would be forced from their long term occupancy if it weren't for rent control regulations in certain areas of the market. With tenant demand remaining high, development activity has been active and investor interest continues to be strong. In some of the more desirable areas, it is not unheard of to see capitalization rates below 4% and possibly even lower than 3% for the most iconic buildings.
Downtown Los Angeles continues to have a resurgence in the multifamily market and West Los Angeles continues to lead the way as the strongest regional submarket.
The rapidly improving rental rates and low vacancy rates has influenced the multifamily market to be the most competitive property type among investors in Los Angeles. The going-in capitalization rate ranges from 4.00% to 5.25% depending on whether urban or suburban and Class A or Class B. Class A trophy properties (particularly in Downtown Los Angeles) have the lowest capitalization rates in the region. Apartment resale values are expected to continue their upward climb over that period, with the potential of rising interest rates partially offsetting these strong market fundamentals.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.