Rental rate growth is slowing throughout Los Angeles, so it isn't unusual that it is happening in Downtown Los Angeles, especially considering the increase in supply. Griffin says that decreasing rents may not be a negative characteristic, considering the affordability crisis in Downtown Los Angeles. “While my developer friends don't want to hear this, it wouldn't be the worst thing in the world for rents to come down a little bit,” says Griffin. “One of the biggest complaints that we have heard is 'everything is unaffordable.'”

The multifamily vacancy rate has climbed above 12% in Downtown Los Angeles. According to the third quarter report from the DCBID, the multifamily occupancy in 87.5%, a 4.4% decrease from the same time last year. The DCBID, however, says that this shouldn't cause concern because during the quarter 1,380 rental units delivered were delivered and 2,700 units have been delivered so far this year.

“Multifamily still looks very strong to me. It is totally a supply issue. There have been a lot of headlines that have gotten it wrong,” Nick Griffin, VP of economic development at the DCBID, tells GlobeSt.com. “If you bring twice as much inventory to market at the same time of buildings that have 300 or 400 units each, there is naturally going to be an increase in vacancy. It takes 12 to 18 months to lease up these buildings, and that is a basic function of real estate.”

According to Griffin, if you adjust for the new supply and look only at apartment buildings that have been open for a year, the vacancy rate actually drops to 5%. “That is that number that you want to be looking at—the buildings that are well established,” he says. “When a new building opens on day one, there is a 100% vacancy rate in that building. If a building takes 12 months to lease up, which is totally natural, then even six months in, it will have a 50% vacancy rate. That skews the number up.”

In addition to the strong occupancy for well-established buildings, Griffin says that leasing agents also attest that interest and deal activity is strong. This is another indicator that the market is healthy, despite the increased vacancy rate. “If you talk to the leasing agents, you will find over and over again that they are right on track,” he says. “They are hitting or beating their expectations for leasing.” Despite the increasing vacancy rate for the quarter, rental rates continued to grow. The report shows that average rental rates were $2.92 per square foot, an increase of 3.9% year-over-year. Griffin, however, says that effective rents actually fell for the quarter, if you consider rental concessions, which have also increased. “The only reason that they are making concessions is that they are in competition with the other properties that are coming out at the same time,” explains Griffin. “They are trying to differentiate themselves, and that is natural competition. They are always willing to get a little free rent to get you in, because they assume that you are going to stay for a few years.”

Rental rate growth is slowing throughout Los Angeles, so it isn't unusual that it is happening in Downtown Los Angeles, especially considering the increase in supply. Griffin says that decreasing rents may not be a negative characteristic, considering the affordability crisis in Downtown Los Angeles. “While my developer friends don't want to hear this, it wouldn't be the worst thing in the world for rents to come down a little bit,” says Griffin. “One of the biggest complaints that we have heard is 'everything is unaffordable.'”