Investors Shy Away From LA Apartment Market in Doldrums

L.A.’s apartment market is nearly on the rocks.

That’s the conclusion of Yardi Matrix, whose new report says sluggish rent growth, diminishing demand and a return to lower but historically average construction starts are dogging the city’s multifamily housing market and discouraging investors, the Commercial Observer reported.

“Los Angeles is feeling the full brunt of the economic slowdown more than other metros,” the report said.

Blame unfavorable lending conditions caused by higher mortgage rates.

From January through September, L.A. investors traded 40 apartment properties for a total of $1.2 billion, a 77 percent decline compared to the same period last year. Of the completed deals, properties sold for a typical $325,294 per unit, down 25 percent from last year’s sales.

At the same time, L.A.’s rental rates rose 0.2 percent to an average $2,592 per month in September, 50.2 percent higher than the average U.S. rate of $1,722.

Just half of Los Angeles’ apartment submarkets had positive year-over-year rent gains, led by Hyde Park, up 23.4 percent to $2,457.

In the first three quarters, developers added 6,277 apartments across Los Angeles, almost 16 percent fewer than in the same period last year. An earlier report by Yardi Matrix predicted 14,000 new apartments by the end of the year.

Builders broke ground on 6,153 units, down 40.5 percent annually. However, that is an “expected correction,” after last year and 2021 recorded above-average increases in supply, according to the Observer.

The city now has 32,951 units under construction, and another 159,000 units in the planning and permitting stages. Downtown L.A. was the top submarket for development, with 4,346 units underway, followed by Westlake-North at 1,970 units and Koreatown with 1,436 units.

A similar report by NAI Capital found that the sale of multifamily buildings across the city fell by nearly 49 percent in the first half of the year, compared to the same period last year, in the wake of higher interest rates and the Measure ULA transfer tax.

“Investors have retreated from the market due to tight credit conditions and a disparity in prices between sellers and buyers, resulting in a transactional standoff,” the brokerage’s report said.

— Dana Bartholomew