Developers are answering the call for more housing supply. This year, according to research from CBRE, Los Angeles apartment delivered will surpass deliveries in 2016, the prior record holder. Even more astounding are the number of units still in the pipeline for development, concentrated in emerging markets like Downtown Los Angeles and Hollywood, and adjacent markets, like Koreatown. To find out about the number of apartment delivered, if there is still enough demand to meet the new supply and how these deliveries have affected rental growth, we sat down with Priscilla Nee, SVP at CBRE, for an exclusive interview.
GlobeSt.com: Where is the majority of the new multifamily development located? Priscilla Nee: The majority of new construction is in Downtown Los Angeles, with more than 11,000 units currently under development. Hollywood is seeing close to 3,000 new additions, followed by Koreatown with approximately 2,400 units and the South Silicon Beach area with just over 2,000 units, according to our CBRE research. There is a common theme running through these neighborhoods that explains why the bulk of multifamily development is happening there and that is an emphasis on live-work-play. All these areas have seen tremendous investment in and influx of restaurants, entertainment, transportation and companies wanting to be in population centers that offer a great quality of life to their employees.
GlobeSt.com: Is demand for multifamily remaining strong, and as a result, will the market absorb the new product easily this year?
Nee: Yes, buyer demand for multifamily remains extremely strong. There is still relatively limited inventory in core markets. Investor absorption of new inventory will not be a problem as there is still plenty of both local and foreign capital looking for a home in Southern California. Still, historically low interest rates, coupled with demand and premiums for non-rent-controlled product will continue to fuel lofty price levels. Renter absorption will take a little bit longer.
GlobeSt.com: Rents are continuing to grow dramatically. At what point will the market reach a supply/demand equilibrium?
Nee: The rent growth has already started to taper off. Higher-end, Class A and renovated multifamily properties have continued to experience rent growth in the past few years but the influx of recent high-end properties has been creating greater competition among landlords.
GlobeSt.com: Is the multifamily construction pipeline continuing to grow, or is there a decrease in new construction starts?
Nee: The short answer is 'it depends where.' Developers are pulling back a bit as they are seeing the wave of new construction come to market while rent growth slows. Overall, pencils are getting sharpened and the margin has to be a little bit more attractive for developers to take the risk. Having said that, you are still seeing a lot of interest and activity in areas such as Silicon Beach. It's such a dynamic growth market with lots of amenities, jobs and a high quality of life.
GlobeSt.com: With the pull back in construction lending, has it been more difficult to get funding for these projects?
Nee: Yes, it has been getting more challenging to get funding for ground-up developments but money is still available for experienced developers looking to build in areas that are amenities rich, strategically located and are close to transportation.
Developers are answering the call for more housing supply. This year, according to research from CBRE, Los Angeles apartment delivered will surpass deliveries in 2016, the prior record holder. Even more astounding are the number of units still in the pipeline for development, concentrated in emerging markets like Downtown Los Angeles and Hollywood, and adjacent markets, like Koreatown. To find out about the number of apartment delivered, if there is still enough demand to meet the new supply and how these deliveries have affected rental growth, we sat down with Priscilla Nee, SVP at CBRE, for an exclusive interview.
GlobeSt.com: Where is the majority of the new multifamily development located? Priscilla Nee: The majority of new construction is in Downtown Los Angeles, with more than 11,000 units currently under development. Hollywood is seeing close to 3,000 new additions, followed by Koreatown with approximately 2,400 units and the South Silicon Beach area with just over 2,000 units, according to our CBRE research. There is a common theme running through these neighborhoods that explains why the bulk of multifamily development is happening there and that is an emphasis on live-work-play. All these areas have seen tremendous investment in and influx of restaurants, entertainment, transportation and companies wanting to be in population centers that offer a great quality of life to their employees.
GlobeSt.com: Is demand for multifamily remaining strong, and as a result, will the market absorb the new product easily this year?
Nee: Yes, buyer demand for multifamily remains extremely strong. There is still relatively limited inventory in core markets. Investor absorption of new inventory will not be a problem as there is still plenty of both local and foreign capital looking for a home in Southern California. Still, historically low interest rates, coupled with demand and premiums for non-rent-controlled product will continue to fuel lofty price levels. Renter absorption will take a little bit longer.
GlobeSt.com: Rents are continuing to grow dramatically. At what point will the market reach a supply/demand equilibrium?
Nee: The rent growth has already started to taper off. Higher-end, Class A and renovated multifamily properties have continued to experience rent growth in the past few years but the influx of recent high-end properties has been creating greater competition among landlords.
GlobeSt.com: Is the multifamily construction pipeline continuing to grow, or is there a decrease in new construction starts?
Nee: The short answer is 'it depends where.' Developers are pulling back a bit as they are seeing the wave of new construction come to market while rent growth slows. Overall, pencils are getting sharpened and the margin has to be a little bit more attractive for developers to take the risk. Having said that, you are still seeing a lot of interest and activity in areas such as Silicon Beach. It's such a dynamic growth market with lots of amenities, jobs and a high quality of life.
GlobeSt.com: With the pull back in construction lending, has it been more difficult to get funding for these projects?
Nee: Yes, it has been getting more challenging to get funding for ground-up developments but money is still available for experienced developers looking to build in areas that are amenities rich, strategically located and are close to transportation.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.