Current State of Los Angeles Multifamily Market

The LA multifamily market shows a mixed profile, with moderate rent gains and increased vacancy even amid limited new supply. Sales activity has softened in recent quarters but points to enduring investor belief in the metro's long-term performance..

Vacancy Rates and Rent Growth Trends

• The vacancy rate ticked up 0.4% year-over-year to 4% in Q2 2023

• However, this remains well below the 4.4% pre-pandemic rate

• Asking rents rose 4.1% over the past year, led by Class B/C segment gains

• The current asking rent averages $2,449 per month across the metro

Ongoing renter demand allows developers targeting the high-end to pencil out projects. But supply constraints limit new additions region-wide, especially workforce housing.

Construction and Development Activity

• The development pipeline stands at 2.6% of existing inventory

• Downtown LA, Burbank, Inglewood, and the San Fernando Valley lead construction

• New projects focusing on Class A urban-core product fetching premium rents

• High land and construction costs pose challenges in adding middle-market rental stock

Ongoing renter demand allows developers targeting the high-end to pencil out projects. But supply constraints limit new additions region-wide, especially workforce housing.

Investment Sales Trends

• Following a surge in 2021, multifamily investment sales slowed by over 50% from Q1 to Q2 2023

• The median price reached $303,500 per unit, while average cap rates hit 4.8%

• Class A cores saw intense bidding, indicating sustained asset appreciation

Investors are bullish on LA rents catching up with the metro's higher living costs. And turn-key assets in dynamic neighborhoods still fetch low yields. Value-added plays offer better returns.

Outlook for 2025 to 2026 and Beyond

Market indicators suggest a robust recovery in multifamily investment activity as we move into 2025. Historical transaction volumes averaging $43 billion per quarter in previous market cycles provide a benchmark for expected performance. The anticipated return of major institutional investors, particularly open-ended funds that have been sitting on the sidelines, should help restore market liquidity.

Several key factors support a positive outlook:

• Supply constraints will likely persist, with new construction continuing to decline from 2024 levels

• Extended rental tenure among potential homebuyers due to elevated mortgage rates

• Demographic shifts driving rental demand in major metropolitan areas

• Projected rent growth exceeding 3% in many top-tier markets, particularly those with strong employment fundamentals

For Los Angeles specifically, these national trends combine with local market strengths:

• Household growth averaging 1.1% yearly as younger generations enter the rental pool

• Premium pricing potential for units not subject to rent control

• Persistent barriers to new development maintaining supply discipline

• Policy support for increased housing density across various income levels

While challenges remain, Los Angeles's fundamental advantages in location, economy, and demographics position it well to benefit from improving market conditions. Strategic investors focused on submarkets with proven demand drivers should find opportunities for sustainable returns.

THE DIXON MULTIFAMILY TEAM