Wednesday, May 7, 2008

Los Angeles Apartments Forecasted to Outperform

Gaylord Apartment Building Los AngelesLos Angeles investors owning rental property can expect robust returns reports Deustsche Bank Group’s April 2008 RREEF Research. Los Angeles – along with Austin, Denver, New York, Portland, San Francisco, San Jose and Seattle – falls in the “out-perform” category, with decreased vacancy and sustained rent momentum projected through 2012.

The apartment sector, which generally underperformed its peers during the economic expansion of the past five years, is well posed for the future. The dominance of the for-sale housing market over the past several years, which culminated in a disastrous bubble that burst, edged out growth in this sector. As the impacts from this bubble unwind, a significant portion of US households will return to being renters. At the same time, favorable demographics will provide a new generation of renter households. While no sector will avoid the impacts of the recessionary economy of 2008, apartments will be the least affected and will be poised for strong growth going forward. This will be particularly true for those markets that avoided the extensive overbuilding of the for-sale housing market.
Forecasts for the Los Angeles Apartment Market:

2008:
Stage – Growth
Vacancy – 3.9%
Rent Momentum: 3 – 4%

2009:
Stage – Growth
Vacancy – 3.7%
Rent Momentum: 3 – 4%

2010:
Stage – Growth
Vacancy – 3.4%
Rent Momentum: Over 4%

2011:
Stage – Growth
Vacancy – 3.9%
Rent Momentum: Over 4%

2012:
Stage – Post-Growth
Vacancy – 3.9%
Rent Momentum: 3 – 4%

In the local market, the credit crunch and more stringent loan underwriting guidelines has reduced the number of qualified buyers, leading to price reductions of some apartment properties. Simultaneously, the number of home buyers has also been reduced, decreasing vacancies and contributing upward rental pricing pressure. Throw into the mix a number of bank-owned properties that are offered “below market” rate, and investors will see that opportunity abounds in the City of Angels when it comes to apartment properties.

www.adnergroup.com

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