Wednesday, April 18, 2012

Investors Get Into Acquisition Mode: Los Angeles Apartment Vacancy Rates in 2012 Decline .8% from 2011 to 4.1%; Rents up 6.2% in 2011, and Forecasted to Rise 7.9% in 2012

Apartment owners will greet the most recent Los Angeles apartment vacancy statistics with glee. The average apartment vacancy in the city of Los Angeles declined from 4.9% in December 2010 to 4.1% in December 2011 (the most recent date for which data is available), a dramatic .8% drop.

The Los Angeles multifamily market is now well into a turnaround.   Last week, the Los Angeles Times reported about significant rent increases in the Southland, with Los Angeles County having the strongest showing among five counties:
Los Angeles County was the strongest performer out of all the Southland counties analyzed by the Lusk Center. The county had a 6.2% increase in average rent during 2011 to $1,596 a month. The forecast predicts that the county's average rent will rise 7.9% in 2012, with total growth of 9.6% by the end of 2013.
The combination of low vacancies, low interest rates, and higher rents rising portend rising returns for apartment owners (with the spectre of compressing cap rates on the horizon.)

The vacancy breakdown of the four geographic areas in December 2010:
  • Central Los Angeles: 4.5% (down .8% since January 2011) -- 420,000 units
  • San Fernando Valley: 3.6% (down .7% since January 2011) -- 227,000 units
  • West Los Angeles: 4.0% (down 1.0% since January 2011) -- 117,000 units
  • Harbor Area: 3.8% (down .2% since January 2011) -- 32,000 units
The largest district, Central Los Angeles, includes neighborhoods like Wilshire (96,000 units, 4.0% vacancy, down .8% since January 2011), Hollywood (76,000 units, 4.5%, down .6% since January 2011), South Central (49,000 unit, 6.6% vacancy, down .6% since January 2011) and Silver Lake / Echo Park (18,000 units, a low 4.0% vacancy, down .4% since January 2011.) The lowest vacancy was recorded in Boyle Heights (2.8%, down .9% since January 2011).

The second largest district, the San Fernando Valley Area, includes North Hollywood (42,000 units, 3.6% vacancy, down .9% since January 2011), Van Nuys (37,000 units, 3.6% vacancy, down .7% since January 2011) and Sherman Oaks-Studio City (23,000 units, 3.4% vacancy, down .6% since January 2011). The lowest vacancy was in Sylmar (5,000 units, 2.4%, down .9% since January 2011).

West Los Angeles, the third largest area, includes Palms-Mar Vista-Marina del Rey (35,000 units, 2.9% vacancy, down .9% since January 2011), West LA - Century City - Rancho Park (30,000 units, 3.2% vacancy, down .9% since January 2011), Westwood (15,000 units, 4.9% vacancy, down .5% since January 2011), Venice (13,000 units, 7.8% vacancy, down .9% since January 2011).  The lowest vacancy was in Palms-Mar Vista-Marina del Rey.

The Harbor Area, includes San Pedro (14,000 units, 4.0% vacancy, down .4% since January 2011), Wilmington-Harbor City (10,000 units, 3.6% vacancy, down .4% since January 2011) and Torrance-Gardena (7,000 units, 4.6% vacancy, down 1.0% since January 2011).

Our conclusionThe rental market across the greater Los Angeles is now one that favors landlords.  Tenants should beware of impending sticker shock as rents increase and apartment availability declines.

Consider that 65,000 units of Westside rental stock (Palms-Mar Vista-Marina del Rey, West LA - Century City - Rancho Park) is averaging 3.0% vacancy.  By any measure, this is a tight rental market, and while interest rates are low and economic sentiment still remains negative, landlords should be in acquisition mode.

Multifamily construction in Los Angeles County is now off the lows seen in 2009 - 2010 (see chart of Los Angeles County multifamily building permits above), but will not make up for the burgeoning demand for rental units.

Data comes the Department of Water and Power (LADWP) and its records on individually metered apartments. We consider this the best reflection of the market, although it does not cover records from the cities of Santa Monica, Beverly Hills, West Hollywood, and Culver City.