Yardi Matrix: Demand Takes the Wheel in LA

The Los Angeles multifamily market is in the sweet spot of the cycle, producing strong rent growth as robust investor interest and solid employment gains drive up demand.
Los Angeles rent evolution, click to enlarge

Los Angeles rent evolution, click to enlarge

The Los Angeles multifamily market is in the sweet spot of the cycle, producing strong rent growth as robust investor interest and solid employment gains drive up demand across asset classes. However, the high cost of housing is effectively pricing out residents, and the market will have to brace for a robust multifamily development pipeline in the coming years.

With both ports operating at some of the highest levels ever recorded, wholesale trade and warehousing have been on the rise in the metro, adding jobs that in turn are fueling demand for Renter-by-Necessity units. Meanwhile, development projects are having an immediate impact: The Los Angeles Rams’ new City of Champions stadium project, for instance, has driven up submarket rents by more than 10 percent since the original announcement. Meanwhile, the city is doing slightly better at attracting major tech companies to the area known as Silicon Beach.

Investment continues to be high in Los Angeles, although strong demand and high occupancy have made property owners reluctant to sell while their assets rise in value. L.A. cap rates are among the lowest in the entire country, as the metro is a favored target for institutional and foreign investors. As completions finally start catching up to demand, the impact of the supply pipeline will slowly become visible. Yardi Matrix is forecasting that rent growth will decelerate toward the end of the year, which will keep rent appreciation to 7.1 percent for 2016.

Read the full Yardi Matrix report.