Interest Stays High in LA

Rent growth continues to derive from a disconnect between growing supply in the Lifestyle segment and demand for workforce properties.
Los Angeles rent evolution, click to enlarge
Los Angeles rent evolution, click to enlarge

Following a strong showing in 2016, rents in Los Angeles continued to grow in 2017, albeit at a more moderate pace. At the end of October, the 3.6 percent year-over-year improvement rate was still well above the 2.3 percent national average. The bulk of growth results from demand for workforce and affordable units, but limited deliveries in that area have pushed up rent gains in the Renter-by-Necessity segment—at 5.0 percent year-over-year through October. Low acquisition yields and some investor reticence have slowed down transaction activity to cycle averages.

Employment growth is heavily driven by health care and education, where 36,000 jobs were added in the 12 months ending in September. Construction jobs continued to be an important part of the city’s labor landscape. A robust development pipeline in multifamily and commercial properties continues to push growth, even as labor shortages hamper progress across most U.S. metros. Having been named host of the 2028 Summer Olympics, Los Angeles intends to leverage its extensive stock of athletic facilities, which should help the metro turn a profit, as it did in both 1932 and 1984. Municipal officials also hope that preparations will result in the addition of a modern transit system, which the city direly needs.

Although roughly 25,000 units were underway at the end of October, indicating strong demand, rent growth continues to derive from a disconnect between growing supply in the Lifestyle segment and demand for workforce properties.

Read the full Yardi Matrix report.