The impact of the pandemic has affected every aspect of the economy. The once robust Los Angeles multifamily real estate market is showing real signs of vulnerability. For years the Los Angeles multifamily market has been the model of consistency and growth. However, that was all disrupted in March 2020 with the stay-at-home order and the effective shutdown of the local economy. Let’s take a look at what’s been happening in the Los Angeles multifamily real estate market:
Vacancies on the Rise
First, we turn to vacancies. Historically Los Angeles has had a limited supply of multifamily units in comparison to demand. This likely is the result of the fact that 50% of those living in the region are renters. This has contributed to relatively low vacancy numbers, as demand has often outpaced supply.
Looking at the vacancy rate, it was 4% in the first quarter of 2020. After analyzing the last five years of vacancy rate analytics, 4% was right in line with previous years. This changed in early 2020. Following the second quarter of 2020, the vacancy rate jumped to 6.3% (a 2.5% increase). This kind of leap would previously have been unheard of in the Los Angeles market, but the pandemic has clearly pushed people out of the region. (all analytics are courtesy of CoStar)
Luxury Properties Take a Hit
Despite the large jump in vacancies, the market showed renewed signs of life in late 2020 and early 2021. Vacancy numbers started to drop in certain types of multifamily properties. In older properties, with fewer amenities, the vacancy rate was between 5.1% and 5.8%. In contrast, luxury properties with extensive amenities had an average vacancy rate of 14%. Clearly, the luxury property segment was hit hard by the pandemic.
Rent Trends Downwards
How have rents been affected by these increased vacancies? Prior to the pandemic in February 2020, the average rent in Los Angeles County was $2.52 per square foot. By the end of the third quarter in 2020, the average rent was $2.46 per sq ft. This represents a drop of 2.5% in less than a year. This was to be expected, considering the rise in vacancies. As demand decreases, supply increases, causing prices to recede. To read more about the rent forecast for the coming year, check out last week’s blog!
Again, looking at the metrics regarding rent in Los Angeles county, luxury multifamily properties were hit the hardest. These properties saw a 5.7% decrease in rental price. Put plainly, people are less willing to commit to pricy luxury properties in lieu of the pandemic.
Multifamily Properties’ Sales Stall
Given the increase in vacancies and decrease in rent, how have the sale of multifamily properties been affected? Prior to the pandemic, there was systematic growth in multifamily sales year over year. Following the pandemic, multifamily sales were the lowest they have ever been since 2012.
However, it is not all bad news regarding sales. The five-year sales forecast predicts that there will be steady growth of .5% during this period. It is apparent a recovery in the market will not be immediate but will occur over time.
The analytics undoubtedly show that the multifamily market has taken a hit. However, the Los Angeles market has always been strong and is on pace to return to prominence. If anything can be drawn from these latest numbers it is this: the Los Angeles Multifamily market is resilient.