Will New Apartment Construction Derail Glendale’s Growth?

Could the multifamily construction activity in Glendale derail the market’s growth? For the last three years, Glendale has seen tremendous investment activity and a growing construction pipeline, among the largest in the Greater L.A. area. The new supply could pose a challenge for investors, especially value-add players banking on rent growth. However, Parker Champion of Champion Real Estate Co., says that the new development is a sign of the tremendous demand for housing in the market.

“New construction activity is always both a pro and a con,” Campion, an EVP at Champion Real Estate Co., tells GlobeSt.com. “New construction is a pro because it illustrates the explicit desirability of the market, which is why a developer has decided to put significant capital at risk.”

While the new development activity is certainly an indicator of the demand in the market—demand that has attracted investment activity in general—Champion says that there are definitely risks in a market with an increasing supply. The company, which has been an active player in Glendale’s multifamily market, is paying close attention to the construction and new deliveries. “We all know that adding new supply in a fundamental supply and demand driven industry also has its own risks should the new supply outstrip demand,” he explains. “As the new Glendale developments aggressively pursue stabilization, concessions and asking rent reductions are inevitable in the top end of the market.”

Even if asking rent growth stalls with new deliveries, Champion says that these are short-term effects of the new supply, and will subside as the market absorbs the product. “We believe this should be a short-term risk however as demand in the L.A. metro, the Tri-Cities and Glendale specially continues to outpace supply at wide margins,” he adds. “Champion today is focused primarily on existing multifamily where we can improve the physical property and provide rents that are still a significant discount to the new deliveries.”

While Glendale is currently the most sought-after market in the Tri-Cities, Burbank and Pasadena are rapidly growing as well. As a result, investment demand is now spilling into these markets; however, it is unlikely that they will start to see the same new construction activity. “The demand for opportunities to invest and develop in Pasadena and Burbank may even exceed that of Glendale,” says Champion. “However, there are currently strong barriers in these markets driven largely by an absence of available land where the improvements aren’t worth more than the dirt. Additionally, the continued construction cost increases that we are seeing both locally and nationally may prevent many new projects from penciling looking forward.”