DTLA Apartment Demand Keeps Pace With New Construction

Downtown Los Angeles is seeing record apartment deliveries, but demand has held strong. According to the third quarter market report from the DCBID, there are more than 5,700 new apartment units under construction, but despite the activity, the apartment vacancy rate in decreased 1.9% to 90.2%.

“We are significantly denser and we have significantly higher level of jobs, and now we are getting a higher density of residents,” Nick Griffin, executive director of the DCBID, tells GlobeSt.com. “That is something that the existing Downtown community has bought into. That is how we are filling up all of these units. There is a large portion of this market that is interested in the lifestyle that Downtown provides. That is why even though we have delivered a record number of units quarter over quarter, we have been able to absorb them. There is a large segment of the population for whom this type of a lifestyle is there first choice.”

Rental rates have slipped slightly, however, in response to the new supply. Average apartment rents dipped 2.8% during the quarter, and condo per square foot prices fell 4.8%. However, this quarter had a lower number of new deliveries than the market saw in other quarters this year, and the decreasing vacancy rate shows the new units are being absorbed. “I think that is a demonstration of the thesis,” says Griffin. “This quarter, we have a breather where we didn’t deliver a record number of units for this particular quarter, the occupancy rate bounces back up. Even when we are delivering a record amount of inventory, the occupancy rate is pushed down temporarily, but the demand is so strong that when that delivery slows at all, it pushes right back up.”

Griffin maintains that new properties are really driving any negative change in average rents and vacancy, but if you isolated the market to mature properties—those that have been open for at least a year—there would be a much different story. “If you look to mature properties, the occupancy rate is 94% or 95%. That is the evidence that the buildings are doing well,” he says. “When a building first opens, the vacancy rate in 100% and it takes some time to fill it up. You really need to look at the occupancy rate of buildings after the first 12 months, and what you see on those buildings is that it is very strong.”

Next year, the apartment construction pipeline is expected to remain strong, and demand in the market is only growing. “We think the market will be active going through 2020,” says Griffin. “The underlying dynamics of the market are strong. Demand far outstrips supply in the region, and we are the one place that is providing that supply. We are also providing a lifestyle that is more appealing with every passing quarter.”