Q3 2022 Multifamily Market Outlook – Los Angeles
In Los Angeles County the multifamily housing market continued stomaching remnants of the statewide eviction moratorium, which was put in place March of 2020 thru September 30, 2021, and extended to expire on December 31, 2022. Tenants who can’t pay the rent after January 1st, 2023, can face eviction. A strong jobs market in Los Angeles County helped landlords attract new renters, pushing vacancy lower. Vacant units dropped 2.5 percent from the prior quarter and 8.9 percent year over year, as the vacancy rate registered 3.4 percent in the third quarter of 2022. Developers added units under construction, up 1.3 percent year over year. Post pandemic multifamily units that once sat vacant on the market, existing and newly built, found tenants fueled by an enormous surge in demand. Occupied units increased by 15,085 from Q3 2021, causing the total number of vacant units on the market to drop well below pre-pandemic levels to 39,127 units as of Q3 2022. The growth in occupancy annually was still larger than was seen following the Great Recession from 2009 to 2014. The average rent increased to another record high of $2,131 per unit per month, up 4.7 percent from Q3 2021. The rise in average rent was driven by newly completed multifamily housing units. Institutional landlords have driven up occupancy levels, offering limited move in rent specials. Investors remained confident in the multifamily housing market as sales volume year to date increased 22.5 percent from Q3 2021.
TRENDS TO WATCH
The multifamily housing market will continue to adjust according to economic conditions. With mortgage rates surging to the highest level since 2002, homeownership has become out of reach for many borrows in the rental market. In LA North, which includes the San Fernando and Santa Clarita Valleys, vacant units decreased 20.4 percent – the largest drop in the region – while the average rent increased 4.9 percent year over year. LA West experienced a 10.2 percent decrease in vacant units as rent there climbed 5.0 percent from Q3 2021 to Q3 2022. In Central LA, vacant units dropped 6.7 percent and rent saw a 3.0 percent increase year over year. On a quarter over quarter basis the market’s rate of growth for the average asking rent pointed a lower trajectory: LA North saw rent inch up 0.2 percent, LA West 0.3 percent, and Central LA just 0.1 percent. The average asking rent in LA County grew a mere four tenths of a percent quarter over quarter.
While rents are unlikely to drop significantly anytime soon, a recent sharp rise in inflation and interest rates has made developers as well as investors wary. Multifamily housing units under construction in LA County totaled 34,001 in Q3 – down 1.9 percent quarter over quarter. Sales volume plummeted 33 precent over the same timeframe as the median sale price per unit dipped 1.8 precent. The shift in market conditions and demand for multifamily housing will continue into 2023.