LA County multifamily market enters steep decline

Sales and prices of Los Angeles County apartments have fallen off a cliff.

The number of units sold in L.A. County fell nearly 11 percent in the first quarter from the final quarter last year, while the year-over-year drop was 37.5 percent, the Commercial Observer reported, citing a report from NAI Capital.

At the same time, the average sales price per unit dropped 18.4 percent.

The Los Angeles County multifamily rental market houses 3.3 million people, but has been hit by an uncertain economy, high inflation and rising borrowing costs.

The Measure ULA “mansion tax” that took effect April 1 is expected to further hamper multifamily deal making. The new law adds a 4 percent transfer tax on commercial real estate deals over $5 million, and a 5.5 percent tax on deals over $10 million.

Interest rate hikes by the Federal Reserve have further impacted economic conditions, crimping the money available to tenants for multifamily housing and the financing available to developers and investors, according to the Observer.

“This shift in market conditions and demand for multifamily housing will impact the underwriting of new projects moving forward,” the NAI report said.

Apartment vacancies have risen across the region, but so have rents.

After the state and county lifted pandemic-era eviction protections, the apartment vacancy rate hit 4.2 percent, up 20 basis points quarter over quarter and 70 basis points higher than last year. 

Meanwhile, average rents rose to a record of $2,156 per unit, up 1.9 percent year over year, with new complexes acting as the main driver.

For investors, the San Fernando Valley and Santa Clarita Valley had the largest drop in average multifamily sale price per unit, down 35.9 percent year over year, while the number of vacant units rose 22 percent. 

The San Gabriel Valley had the largest rise in vacant units, up 32.2 percent as the average sale price per unit sold dropped 20.3 percent year over year. 

The average price per unit sold on L.A.’s Westside fell 9.5 percent, while the number of vacant units rose 10.7 percent.

— Dana Bartholomew