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.
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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