Stability Marks Q1 Apartment Market

LOS ANGELES-Apartments, which have remained a favorite of investors large and small throughout the current economic slump, turned in a stable performance in the first quarter in Los Angeles County, according to a new report by Marcus & Millichap.

The Palo Alto-based investment brokerage specialist says fundamentals remained strong but flat in the region during the quarter. The imbalance between strong investor demand and a limited supply of properties for sale, though, has caused selling prices to increase dramatically in the past year, more than 20% in some parts of the county.

Vacancy rates in the Los Angeles apartment market were basically flat in the first quarter, increasing only about a tenth of a percentage point to 4.37%, according to the report.

Researchers say asking rents climbed approximately 1% from year-end to an average of $1,121 per month. On the investment side, while the median price per unit sold remained essentially unchanged in the first quarter, prices have appreciated 15.44% in the county in the past 12 months. The average selling price is now $85,650 per unit.

Escalating home prices and a lack of new multifamily construction are among the reasons the region’s apartment market remains very tight, according to Stephen Stein, regional manager of Marcus & Millichap’s Los Angeles office. Meanwhile, the Encino-based president of the company, Harvey E. Green, cites differences between the LA market and the rest of the nation. Green says renter demand nationwide has declined because of the weak economy and low interest rates that enable many would-be renters to buy homes. However, Green says the Los Angeles apartment market ranks high both in terms of renter demand and demand by investors despite a slowing of rent growth in LA and higher vacancies in the luxury end of the market.

Green says investors still like apartments as an investment because they stack up favorably versus other types of investments. Additionally, low interest rates enable buyers to acquire apartments at higher prices. He believes a rebound in tenant demand is possible in the latter part of this year as the economy improves and home prices soar, further supporting a strong investment market.