Los Angeles 2023 apartment market outlook by Moody’s Analytics CRE

Los Angeles 2023 apartment market outlook by Moody’s Analytics CRE

Rent growth slowed during the third quarter in the Los Angeles apartment market, but the city’s rents were still expected to rise 11% or more in 2022. In 2023, that could make L.A. a haven for investors even if a recession hits. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.

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LA rent growth slowed while vacancies fell

After a particularly strong first half of 2022, the Los Angeles apartment market appeared to show signs of moderation in the third quarter. Effective rents rose 4.6% and 5.5% in the first and second quarters, respectively, but were up a relatively minuscule 0.2% percent in the third quarter, according to Moody’s Analytics CRE.  

Vacancies continued to decline, from 4% at the start of the year to 3.5% by the end of the third quarter, so performance metrics were decidedly mixed.

Top submarkets: Mid-City/West Adams and Wilshire/Westlake 

Some bright spots in Los Angeles include stronger submarkets like Mid-City/West Adams and Wilshire/Westlake. Mid-City/West Adams saw effective rents grow by 2.5% in the third quarter and 15.7% year over year. Both of these growth rate measures put this area at No. 1 across the city’s 38 submarkets. Wilshire/Westlake had effective rents rise by 2.5% as well. But aside from these two neighborhoods, no other submarket in Los Angeles saw third quarter effective rents rise by over 1%. 

LA a haven for real estate investors, even if growth slows

Moody’s anticipated that 2022 would represent a slowdown relative to robust numbers posted in 2021. Expectations of continued economic growth were dashed amid the Russia-Ukraine war that started last spring, and with inflation remaining persistently high, the Federal Reserve’s stance on tightening monetary policy is further dampening activity.

But despite expectations of a slowdown, the Los Angeles apartment market was expected to end 2022 with effective rents rising 11% or more. And if the economy continues to grow in 2023, the city’s rents may rise by another 4% to 5%. That’s slower than last year — but that’s hardly a reason for disappointment. It does suggest that even if a recession takes place in the next 12 months, Los Angeles multifamily may well continue to offer a relative haven for investors — even if rent growth slows.

By the editorial team at Story by J.P. Morgan

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