LA’s Multifamily Market Takes Its Hits: Apartment Sales, Values Drop
Region handles expiration of pandemic-era eviction protections, tightening credit conditions and inflation
By Greg Cornfield May 1, 2023 10:45 am
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Investors and developers are wary of Los Angeles County’s multifamily rental market — which includes 3.3 million households — as it sustains blows from the larger economic reset, high inflation and rising borrowing costs.
The number of units sold in L.A. in the first quarter fell almost 11 percent compared to the final quarter of 2022, and was down 37.5 percent annually, according to a market report from NAI Capital. At the same time, the average sales price per unit dropped 18.4 percent. Nearly $1.9 billion in multifamily asset sales closed over the quarter.
This data comes from activity that closed before Measure ULA took effect April 1, which is expected to further hamper demand and dissuade deal making. The new law adds a 4 percent transfer tax on commercial real estate deals over $5 million, and a 5.5 percent tax on deals over $10 million.
The Federal Reserve’s moves have complicated economic conditions, hitting both the demand for multifamily housing and the financing available to developers and investors.
“This shift in market conditions and demand for multifamily housing will impact the underwriting of new projects moving forward,” NAI’s report read.
After California and L.A. County authorities lifted pandemic-era eviction protections, the vacancy rate hit 4.2 percent, up 20 basis points quarter over quarter and 70 basis points higher than last year. Average rents rose to a record of $2,156 per unit, up 1.9 percent year over year, with newly completed units being the main drivers.
The San Fernando Valley and Santa Clarita Valley saw the largest drop in average sale price per unit, down 35.9 percent year over year, and the number of vacant units increased 22 percent.
The east side of the county, home to the San Gabriel Valley, saw the largest rise in vacant units, up 32.2 percent as the average sale price per unit sold dropped 20.3 percent year over year. The average price per unit sold on L.A.’s Westside dropped 9.5 percent, and the number of vacant units increased 10.7 percent.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
