Los Angeles Apartments See First Rent Drop Since 2020

Economic headwinds are buffeting even the tightest housing markets in the US: exhibit A is greater Los Angeles, where multifamily rents declined in the fourth quarter for the first time in two and a half years, despite an occupancy rate that held steady at more than 96% since the beginning of 2022.

The average monthly effective rent in Los Angeles in Q4 ticked down to $2,147 from the Q3 level of $2,154, according to Colliers’ Q4 market report. Rents in LA, which notched a 3.3% YOY increase compared to Q4 2021, remain about 9% above pre-pandemic levels.

Despite rising interest rates, the Los Angeles multifamily market recorded the highest annual sales volume in its history, Colliers said. Sales volume in 2022 totaled $11B, up $185M from 2021, with an average price per unit of $415K, up 3.9% from last year.

In perhaps the most ominous sign of the developing downturn, new supply (measured in units delivered) outpaced demand (measured in units absorbed) for the second consecutive quarter in LA.

Colliers reported that 3,573 new apartment units were delivered in the market in Q4, while 1,980 units were absorbed; supply also outpaced demand in Q3, with 2,470 units absorbed out of 2,639 delivered. By comparison, demand in Q4 2021 outraced new supply, 5,018 to 3,584.

About 35,000 multifamily units are in the construction pipeline in Los Angeles. Deliveries scheduled for 2023 include a 325-unit multifamily known as First Street Village developed by Del Rey Properties in Burbank and a 205-unit campus in LA known as Venue, expected to be completed in Q4 2023 by Oakmont Capital.

Similar results were posted in Colliers Q4 result for Orange County, where the average monthly effective rent for the multifamily sector also dipped for the second consecutive quarter, albeit just by a handful of dollars.

Rents in Orange County ticked down to $2,443 in Q4, a slight decrease from the Q3 average for a one-bedroom apartment of $2,485. Occupancy rates also have exceeded 96% in Orange County, peaking at nearly 98% at the beginning of last year.

Orange County rents, which are up 2.7% in a YOY comparison in Q4, still have a long way to go to reach pre-pandemic levels: current rents are 23% above those recorded in 2019.

However, overall sales volume in Orange County in 2022 declined by 26% compared to 2021. The sales volume total of $2.5B, with an average price per unit of $498K, remains above the five-year historical average of $1.9B.