LOS ANGELES-Demand for apartment units is so great in the Los Angeles market that the market is nearly constantly undersupplied, and even the 3,500 new units in the pipeline won't damage occupancy rates, Joe Leon, managing director of Jones Lang LaSalle, tells GlobeSt.com. The firm's summer multifamily outlook shows that multifamily occupancy in L.A remains one of the tightest in the US.

“The demand factor on the capital side is high,” Leon says. “Downtown L.A. has 3,500 units coming online, but it has a daytime population of 500,000, so it can probably handle most of that supply. Some submarkets will get overbuilt a little for a while, but the laws are such that they really preclude overbuilding. So, in my opinion, we are generally undersupplied and will stay that way until we are temporarily oversupplied.”

Leon says many failed condominium projects were leased out as apartments during the recession, when renters might have hoped to get one to two months' free concessions, but the market is currently burning up embedded concessions. “Fully leased, stabilized properties are coming to market and driving up prices with bigger units and higher rents. The market is being buoyed by these properties—as more of these filter into the market and they get mixed into the averages, the averages rise, and there is so much demand that they will start to sell. I'm working on a $160-million one right now.”

Condominium converters is an emerging trend as capital becomes available to syndicate these types of transactions, Leon adds. “This year and into next year, the demand will be there for sure.”

On the supply side, condominium developers are beginning to outbid apartment developers for multifamily sites in L.A. and Orange County, and condo prices are up 10% to 30%, Leon says. “When you have that rise in pricing, everything starts to work again. Condo developers can get financing, developers are buying and paying a lot, and they're outbidding and winning more often than losing.”

The JLL report found that L.A. homeownership percentage is the lowest in the US, which speaks to the strength of the multifamily rental market here, and L.A. is expected to absorb the 10^th most units in 2014. The report also showed that, investment-wise, Santa Monica is one of the most expensive multifamily cities in the US at $473,000 per unit, and L.A. is ranked 24^th among multifamily growth markets in the US.