Strong Apartment Fundamentals Return to Los Angeles

The Los Angeles apartment market is seeing renewed strength this year. Research from Marcus & Millichap shows that vacancy has declined by at least 350 basis points in Downtown Los Angeles and the Westside markets, two of the largest employment hubs in the city. As a result, the two submarkets have a sub 2% vacancy rate.

The rebound in the Los Angeles area has come in advance of a widespread return to the office, suggesting that more demand is likely to come later this year. As a result, Marcus & Millichap predicts that the vacancy rate will fall 40 basis points this year and rents will increase 7.2%.

The strong fundamentals are driven not only by strong demand but also a dearth of supply. While demand has rebounded, construction activity has not. Downtown Los Angeles will record a record decline in apartment deliveries this year, and Santa Monica is the only market on the Westside to deliver more than 500 units, according to the report. Overall, Los Angeles’ apartment construction pipeline will deliver 10,000 units this year, increasing the total apartment stock by .9%.

Downtown Los Angeles and the Westside market are not the only Los Angeles areas to see a surge in growth. The suburbs are also on fire. The San Fernando Valley and South Bay-Long Beach are attracting new renters looking for affordability. The two markets have a 1.8% and 2% vacancy rate, respectively.

The Los Angeles market rebounded quickly from the pandemic. Last year, rents increased 14% in the Greater Los Angeles area, according to research from Apartment List. Rents in the metro fell 9.6% in 2020 as a result of the pandemic. Before the pandemic, rent growth has stagnated in the market with little to no growth each month, but the pandemic jump-started double-digit rent growth once again.

While the fundamentals are good news, Los Angeles landlords are still facing challenges from the pandemic. Los Angeles County has $3 billion in total rent debt, and Los Angeles city has about $1.5 million in unpaid rent from the pandemic. Among those with rent debt, the average tenant owes $2,800 in unpaid rent, according to research from UCLA and USC. The share of renters unable to make payments only worsened as the pandemic wore on. From May to July 2020—near the onset of the pandemic—about 7% of renters did not make a single payment. Likewise, from January to March 2021, the same share, 7%, of renters did not make a single payment. However, the share of renters that made a partial payment increased from 17% in May through July 2020 to 31% in January to March 2021.