DTLA’s multifamily market may face oversupply, but it didn’t happen in 2016

Concerns remain about how Downtown Los Angeles will absorb the thousands of luxury apartments delivering in coming years, with more than 7,000 high-end units now under construction. However, the submarket got through 2016 — a year during which 1,700 units hit the market — relatively scott free.

Despite supply-driven volatility on a quarter-to-quarter basis, DTLA’s multifamily market closed out the year with an average vacancy rate 8.8 percent in 2016, a 0.3 percent decrease from 2015, a year-end report by CoStar shows.

“This is the highest vacancy rate of any L.A. submarket by orders of magnitude, but the ability of the area to quickly absorb the past two years’ new supply is encouraging news for Downtown developers,” said CoStar analyst Steve Basham, who authored the report.

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The data was promising for projects that opened in 2016, Basham said. Blossom Plaza, a 237-unit mixed-use project in Chinatown, opened in June and was about 75 percent occupied by the end of the year, while the 320-unit Garey Building Apartments — Downtown’s largest new project in 2016 — opened in June and leased about 30 units per month, reaching 50 percent occupancy before the end of the year.

Asking rents grew by just under 3 percent in 2016, lagging far behind the L.A. metro area. That figure does not account for the generous concessions that were offered at most new developments as a way to compete. Carmel Partners’ Eighth & Grand complex, for example, was offering new tenants two months of free rent at one point last year. With those concessions factored in, DTLA’s effective rent growth was near zero percent, Basham said. As more units deliver, it is expected to continue to lag far behind the larger L.A. metro area.

“It’s not really a huge cause for concern,” Basham told The Real Deal. “You just have so much product the market at the same time that it was almost inevitable that rent was going to slow down. That’s just supply and demand.”