In Q2 economic activity declined with the closing of non essential businesses and stay-at-home orders. By most indicators the Muti-family market had one of its worse performances in the last 10 years. Vacancy rates spiked across the board particularly in submarkets with a large amount of recent development or development in the pipeline.
Apartment demand is at a fraction of pre-pandemic level and as a result rents have decreased in the majority of submarkets. Upscale or luxury communities (4&5 star units) have been hit the hardest while low-income working-class communities (1&2 star units) are holding steady. With a lack of demand for 4&5 star units, it is difficult to get market rents and property owners are forced to make concessions to stay competitive. Across Los Angeles County, rent concessions have increased since the beginning of March nearly threefold.
Downtown has been hit particularly hard as large projects underway and recently completed struggle to lease-up. Four & Five-star properties in downtown take the brunt of DTLA vacancies with 8.5% since the start of the year. Three-star properties downtown are only down about 2.5% this year. While Low-end and workforce housing properties, rents have grown across the submarket by 1.5% in 2020. All and all DTLA has year-over-year declines in average asking rents of nearly 8%.
The one bright spot is the demand as investors see an opportunity to scoop up discounted properties and ride out the recovery. However, further improvement to demand is unlikely if local/federal stimulus is not renewed or revamped.
In the long term, the lack of affordability and supply paired with high demand will keep Los Angeles County’s multi-family market.