SoCal Apartment Market to See Modest Rental Uptick

The Southern California apartment market, one of the nation’s largest, is looking forward to modest rent increases, except in certain highly desirable parts of the region, according to a new study by the University of Southern California Lusk Center for Real Estate. The latest Casden Real Estate Economics Forecast, released today by the Lusk Center, notes that Southern California apartment rents will see average increases of 2.5 percent to 3 percent, while occupancy rates will remain at 96 percent to 97 percent. Covering Los Angeles, Orange, Riverside and San Bernardino counties, the forecast analyzes apartment transactions, new building permits, leasing activity and employment data using information from MP/F YieldStar, Hanley Wood and other sources.Though fallout from the subprime crisis is expected to send previous homeowners into the rental market, upward pressure on rents might be muted in Southern California because of a relatively large stock of new multi-family rental properties on the market, and the fact that some previous condo projects have reverted to rentals. There is also a larger shadow market of single-family houses and condos for rent now than before the subprime meltdown.”About 6,000 new apartment units came on the market last year in Los Angeles County, and about 6,800 will this year,” Delores Conway, director of the Casden Forecast, told CPN this afternoon, a fact that she says will help moderate upward pressure on rents. Another factor is a softening job forecast. “The jobs outlook is soft, which will affect new household formation by younger workers, who mostly occupy apartments,” she said. “Also, people are leaving Southern California for other places, and that represents a dampening factor for apartment demand as well.” With more than 1 million apartment units, according to the report, Los Angeles County will see rental increases averaging 2.5 to 3 percent, with somewhat higher increases on the Westside and in Hollywood, Pasadena, Burbank and Long Beach–all still considered desirable markets. The average monthly rent in L.A. County stands at $1,580, the third highest in California, trailing only San Francisco and San Jose.Despite job losses in Orange County, apartment demand picked up in 2007, with rents moving up by 4 percent on average. The overall outlook for the county’s apartment market in 2008 is somewhat cautious, as the region adjusts to employment contractions in the financial services and real estate industries. At $1,550, average monthly rents in Orange County are only slightly lower than L.A. County.By contrast, rents in the Inland Empire are considerably more affordable, at an average of $1,104. Apartment affordability nationwide, as covered yesterday by CPN, remains a particular concern in Southern California, with its notoriously high for-sale and rental rates. The Casden Forecast posits that the Inland Empire’s rental rates will see only modest growth this year, perhaps 2 percent to 2.5 percent, due to the large number of new apartments recently built.