The number of new apartments expected to come online in Los Angeles this year is expected to top the previous record reached in 2016, driven by continued strong demand for rental space, according to the latest research report by CBRE Group, Inc.
Deliveries in 2017 are projected to total 7,830, up from 7,755 in 2016, which had been the highest annual volume in the past 20 years. Continued strong demand helped buoy effective rates to $1,630 during the first quarter from $1,298 in Q1 2012. Rental rate growth was driven not just by changing home ownership preferences but also by the development of high-end multifamily properties in the region.
“Multifamily sales continue to rise in Los Angeles because of the segment’s popularity among different population groups, especially Millenials“ said CBRE Executive Vice President Laurie Lustig-Bower. “Demand continues to be propelled by the allure of living in vibrant, amenities-rich and public transportation-focused neighborhoods such as Downtown LA, Hollywood and the West Side.”
South Silicon Beach is currently undergoing a mini development boom fueled by several projects in Marina Del Rey and Westchester, according to the report. In the first quarter, apartments under construction in the area, which also includes such neighborhoods as Venice and Playa Del Rey, accounted for 9% of total existing inventory compared with 2.7% across all of West Los Angeles.
“The development boom we are seeing in this particular sub-market is due to a variety of different factors, including proximity to the beach, a vibrant and growing tech and media scene, as well as home ownership being particularly expensive in this area,” said Priscilla Nee, senior vice president at CBRE.
Investor pricing for multifamily reached an all-time high in the first quarter, climbing 19.6% to $268,132 per unit, while capitalization rates continued to tighten to record lows. The average sale price in the first quarter specifically of garden assets rose 10.4% while the average for mid- and high-rise assets jumped 23.2%.
In spite of continuing strong demand and rental growth, year-over-year investment activity fell 25.4% in the Greater LA region, marking the lowest level of activity since Q1 2014 for both individual and portfolio transactions. The rise in both long-term and short term interest rates was one of the contributing factors to the decline, according to the research report.
Looking forward, vacancies are expected to remain stable in 2017 and temporarily rise due to new supply starting in 2018, with rents continuing to grow at a moderate pace, according to the report.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.