LOS ANGELES-The completion of new multifamily units and a robust single-family housing market is creating an uneven apartment market across L.A. County, according to a Marcus & Millichap Q3 research report.

The report sounds a note of caution for multifamily investors, pointing out that the Panama Canal construction, the still-stagnant jobs market, and above-average construction may have a dampening effect on overall growth. The report does note that the building boom may run out of steam by 2015.

In the South Bay, where lower rents almost never support construction, apartment operations are holding up, the report states. Vacancy continues to track lower in the area as household formation gains momentum, giving managers impetus to lift rents. M&M says some downside risk is prevalent, as the widening of the Panama Canal could shift thousands of longshoreman jobs to Houston and Miami, dampening demand for area apartments.

Elsewhere, L.A.'s downtown, West side cities and the San Fernando Valley are still working through supply additions. Specifically, the Van Nuys/Northeast San Fernando Valley, Santa Monica/Marina del Rey, downtown L.A. and Tri-Cities submarkets will face above-average inventory growth in the coming months, according to the report. M&M says that should keep operators active with rent adjustments to attract and retain tenants as nearby projects come online.

The Valley faces a potential headwind from the recovering single-family housing market. Recent gains in home prices and interest rates will mitigate renter attrition to new homes in the coming months, according to M&M. The report also states that while operations have softened modestly over the past few quarters, investor enthusiasm remains very healthy and more buyers are active in the market than sellers. The imbalance between the number of buyers and sellers is dissipating and should close further as the year progresses.

Rising interest rates fueled by speculation that the Federal Reserve will begin to evaporate the third round of quantitative easing by year end is forcing some leveraged buyers to the sidelines or inland in search of higher yields. Additionally, upward pressure on cap rates is percolating, which may finally signal to owners with plans to dissolve their portfolios within the next three years to put properties on the market.

Assets near the coast can still command first-year returns in the low 4% range, though current agency financing is in the same ballpark, leaving mostly cash-heavy buyers in the pool. Further inland, where first-year returns drift closer to 6%, the spread between cap rates and interest rates remains workable for most investors, including first-time buyers. After adding 85,100 positions in 2012, employers in Los Angeles County will hire 81,000 workers this year, expanding head counts by 2.1%. Only the government and manufacturing sectors will shed a handful of positions, M&M says.

Over the past 12 months, employers added 71,300 jobs across Los Angeles County, lifting payrolls 1.6%. The pace of hiring slowed in the first half of the year, as private-sector employers remained cautious about the effects of sequestration. In the first six months, 26,200 positions were created. The professional and business services sector has been a primary driver of job growth over the last 12 months, as 19,500 jobs were added, a 3.4 % rise. Developers hired 10,800 workers in the year-long period ending in the second quarter, a jump in head counts of 10%. Nonetheless, the two sectors remain 60,000 spots below the pre-recession level.

Tourism and business trips to Los Angeles are spurring job growth. Year over year, hotel occupancy has increased by nearly 200 basis points, supporting the addition of 18,600 workers in the leisure and hospitality sectors. The sector has expanded by 4.5% in the last 12 months. After adding 85,100 positions in 2012, employers in Los Angeles County will hire 81,000 workers this year, expanding head counts by 2.1%. Only the government and manufacturing sectors will shed a handful of positions.

This year will mark the first of two years of above-average apartment development in Los Angeles. Builders will finish construction on 6,000 rentals this year, approximately double the number finished last year. As new construction comes online in the second half of this year, vacancy will continue to drift higher. By year end, vacancy will reach 4.1%, an annual rise of 40 basis points. In 2012, vacancy declined 30 basis points.

Effective rents will continue climbing in 2013, as vacancy remains sufficiently tighten to give managers some leverage when setting rates. By year end, effective rents will reach $1,689 per month, an annual rise of 3.5%.

Encouraged by strong home sales, builders lifted single-family permitting activity by 24% year over year to an annualized 2,900 homes in the second quarter. Multifamily permits jumped 59% during the same period to an annualized 12,900 units. Low interest rates fueled demand, which drove up the median single-family home price 12% to $347,500. The median household income was stagnant during that time at $54,200, creating a $25,900 shortfall between the median household income and the minimum qualifying income to buy a median-priced home.

Using traditional financing, the gap between rents at 2000s-vintage apartments and the monthly mortgage obligation on a median-priced home was $416 per month in the second quarter in favor of purchasing. Although rents at newer properties are higher than mortgage payments, the M&M report says most residents will not be able to overcome the underwriting and downpayment hurdles associated with buying a home in today's market.

Builders completed 4,200 units during the past year, expanding inventory 0.4%. After adding more than 1,000 units in each of the past three quarters, the pace of construction will approach 2,000 units per quarter in the next six months. Approximately 10,000 market-rate apartments are underway throughout the county, including the 544-unit Shores apartments in Marina del Rey, which is nearing completion.

Only 5,800 apartments are planned in the county, an indication that the current building boom is running out of steam and could subside by 2015. This year will mark the first of two years of above-average apartment development in Los Angeles. Builders will finish construction on 6,000 rentals this year, approximately double the number finished last year. Countywide vacancy inched up 10 basis points in the second quarter to 3.8%, as some renters started combining households at the bottom of the market. Year over year, however, the rate is down 10 basis points.

At properties constructed since 2000, average vacancy was 4% in the second quarter, down 90 basis points from one year ago. Older properties are showing some weakness in the current market. Pre-1980s rentals posted a 20-basis point rise in vacancy in the last 12 months, to 3.5%.

Outlying areas of the county, where competition with the single-family housing market is more intense, have a significant number of vacant units. In Antelope Valley, vacancy was 8.6% in the second quarter, while Santa Clarita Valley recorded the second highest vacancy at 6.2%. As new construction comes online in the second half of this year, vacancy will continue to drift higher. By year end, vacancy will reach 4.1%, an annual rise of 40 basis points. In 2012, vacancy declined 30 basis points.

In the second quarter, professionally managed apartments recorded effective rents of $1,666 per month, an annual rise of 3.1%. In the previous year-long period, effective rents climbed 3.5%. Healthy demand for newer properties supported a 3.3% jump in effective rents at 2000s-vintage apartments to $2,214 per month. The slowest pace of rent growth over the past year was recorded in 1990s apartments, where effective rents inched up 1.6% to $1,620 per month.

South Bay and South Los Angeles have the lowest vacancy rates in metro, which has supported above-average rent gains during the past year. South Bay managers lifted effective rents 4.3%, while South Los Angeles apartment owners realized a 5.7% gain.

Effective rents will continue climbing this year as vacancy remains sufficiently tight to give managers some leverage when setting rates. By year end, effective rents will reach $1,689 per month, an annual rise of 3.5%.

During the most recent 12-month period, deal flow jumped 26%, as buyers rushed to acquire local properties. Thus far in 2013, investors have focused their attention on Mid-Wilshire, South Bay and the Tri-Cities. Buyers paid a median price of $128,600 per unit during the past year, on par with the previous period. Pending transactions have a median price in the high-$130,000 range, an indication that valuations have climbed. Average cap rates were in the low 5% range during the past year, down 30 basis points from the previous period.

First-year returns range approximately 100 basis points on either side of the average, moving from coastal neighborhoods to the eastern stretches of the county. M&M reports that volatility surrounding interest rates could rein in some of the buying activity for a few months, leaving investors willing to remain in the market in an advantageous position to acquire apartments

A copy of the entire report is available online at the Marcus & Millichap web site.

As previously reported by GlobeSt.com, Marcus & Millichap Research Services predicted that the pace of job growth will likely lead the Fed to end stimulus this year.