L.A. Apartment Rents Fall in October

LOS ANGELES—Apartment rent growth in Los Angeles may be waning. In October, average apartment rents in Los Angeles fell for the first time in several months, according to data from Axiometrics. The firm found that average rent growth in the market fell year-over-year by nearly 2%, from 6.4% in October 2015 to 4.1% in October 2016. Prior to October, Los Angeles has experienced six consecutive months of consistent rent growth.

October's waning rent growth isn't causing analysts concern, however. Nick Fitzpatrick, a real estate analyst at Axiometrics, attributed the declining growth rate to the significant number of new construction deliveries this year. “It is not too surprising to see that rent growth has moderated somewhat when you see that new supply is coming into the market, especially in the fourth quarter of this year,” he tells GlobeSt.com. “In the third quarter of 2016, we saw 2,700 new units hit the market, and we are expecting another 2,000 before the end of the year. For the full year of 2016, we'll see about 9,300 new units, and that is in Los Angeles County alone. Compared to last year, we only saw about 5,000 new units. There is a lot of new supply entering the market, and that is going to continue.”

This doesn't mean rental rates have stopped growing, but rather that they are growing at a slower pace. In fact, apartment rental growth in Los Angeles is trending well above the national average and above other major US metros. “The rent growth in Los Angeles and the surrounding metros, while it has decreased somewhat, it is still really strong,” says Fitzpatrick. “The national average for rent growth right now is 2.6%, and we are seeing 4.1% in Los Angeles, 5.3% in Orange County and 7% in Riverside. Those are still really strong numbers. When you compare it to the national average and even Northern California, which is experiencing negative rent growth right now, these numbers are really strong.”

Rent growth is decreasing in submarkets that have seen the most new construction deliveries, like Downtown Los Angeles and Glendale. While rents are softening, the occupancy rate has remained stable, at just above 96% since October 2015. For that reason, Fitzpatrick believes that all of the new supply coming online will be absorbed, even with decreases in rental rates.

Despite the slowing rental rate growth, the outlook for Los Angeles multifamily is still positive; however, Fitzpatrick does expect the market to see slowing rent growth through 2017 as more new apartment units come to the market, creating a temporary surplus of supply. While some of the softening may be the effect of market cycles—and the fact that we are pretty deep into this one—Fitzpatrick says that the pull back in rents is mostly linked to new supply, and believes that rental rate trends will continue to be tied to new construction deliveries. “You can only push the phenomenal rents that we are seeing in so many markets across the country for so long,” he adds. “At some point, that is going to come down a little bit, and new supply helps to bring that about. In L.A., we are expecting to see new supply peak in 2016, so we can expect continued moderation through next year as all of that new supply comes to market. In 2018, there will be a pull back of new supply and things will pick back up through 2019.”

LOS ANGELES—Apartment rent growth in Los Angeles may be waning. In October, average apartment rents in Los Angeles fell for the first time in several months, according to data from Axiometrics. The firm found that average rent growth in the market fell year-over-year by nearly 2%, from 6.4% in October 2015 to 4.1% in October 2016. Prior to October, Los Angeles has experienced six consecutive months of consistent rent growth.

October's waning rent growth isn't causing analysts concern, however. Nick Fitzpatrick, a real estate analyst at Axiometrics, attributed the declining growth rate to the significant number of new construction deliveries this year. “It is not too surprising to see that rent growth has moderated somewhat when you see that new supply is coming into the market, especially in the fourth quarter of this year,” he tells GlobeSt.com. “In the third quarter of 2016, we saw 2,700 new units hit the market, and we are expecting another 2,000 before the end of the year. For the full year of 2016, we'll see about 9,300 new units, and that is in Los Angeles County alone. Compared to last year, we only saw about 5,000 new units. There is a lot of new supply entering the market, and that is going to continue.”

This doesn't mean rental rates have stopped growing, but rather that they are growing at a slower pace. In fact, apartment rental growth in Los Angeles is trending well above the national average and above other major US metros. “The rent growth in Los Angeles and the surrounding metros, while it has decreased somewhat, it is still really strong,” says Fitzpatrick. “The national average for rent growth right now is 2.6%, and we are seeing 4.1% in Los Angeles, 5.3% in Orange County and 7% in Riverside. Those are still really strong numbers. When you compare it to the national average and even Northern California, which is experiencing negative rent growth right now, these numbers are really strong.”

Rent growth is decreasing in submarkets that have seen the most new construction deliveries, like Downtown Los Angeles and Glendale. While rents are softening, the occupancy rate has remained stable, at just above 96% since October 2015. For that reason, Fitzpatrick believes that all of the new supply coming online will be absorbed, even with decreases in rental rates.

Despite the slowing rental rate growth, the outlook for Los Angeles multifamily is still positive; however, Fitzpatrick does expect the market to see slowing rent growth through 2017 as more new apartment units come to the market, creating a temporary surplus of supply. While some of the softening may be the effect of market cycles—and the fact that we are pretty deep into this one—Fitzpatrick says that the pull back in rents is mostly linked to new supply, and believes that rental rate trends will continue to be tied to new construction deliveries. “You can only push the phenomenal rents that we are seeing in so many markets across the country for so long,” he adds. “At some point, that is going to come down a little bit, and new supply helps to bring that about. In L.A., we are expecting to see new supply peak in 2016, so we can expect continued moderation through next year as all of that new supply comes to market. In 2018, there will be a pull back of new supply and things will pick back up through 2019.”