Expected returns drop for LA real estate

Amid softening market, multifamily rates sat at historic lows in 2018

Los Angeles /
Mar.March 04, 2019 05:00 PM
Greater Los Angeles is seeing some of the largest decreases in cap rates (Credit: Wikimedia)

Amid a cooling real estate market, Los Angeles is seeing some of the sharpest decreases in expected rates of return across multiple markets.

Job growth and tax cuts led to stable rates for investment throughout the country last year, but L.A.’s expected returns dropped, according to research by CBRE. Multifamily cap rates remained at historic lows in the second half of 2018.

Most Southern California markets posted cap rates at sub-5 percent for Class A infill, including Los Angeles, Orange County and San Diego.

Capitalization rates are expect to remain stable in the first half of 2019. But high demand for industrial space — driven largely by e-commerce firms — kept rates in Southern California among the lowest in the country.

Orange County came in fourth place, Los Angeles came in sixth, and the Inland Empire came in seventh place in CBRE’s list. Last year’s biggest industrial leases clustered in leading logistics hubs, with the Inland Empire topping the list.

Orange County came in fourth and Los Angeles in fifth for Class A office properties located in central business district, featuring cap rates between 4.5 percent to 5.5 percent, following San Francisco, New York City and Seattle.

L.A.-based CBRE executive vice president, Todd Tydlaska, said Los Angeles and Orange County remain the top target markets for capital for the fourth year in a row.

Hotel cap rates were mostly stable in the second half of 2018, but luxury hotel cap rates were the lowest in Los Angeles, Orange County and Boston at around 6.8 percent.

Retail cap rates increased for all segments in the second half of 2018. But shopping centers in affluent suburban communities in Orange County and Los Angeles posted the lowest cap rates in the nation at 4.9 percent.

High street retail in L.A. featured the second-lowest rates in the country at 4.1 percent, following San Francisco. Patrick Wade, a CBRE senior vice president, said buyers and lenders are becoming more conservative in their underwriting assumptions and expecting higher yield due to more supply on the market.

“Prime L.A. County submarkets such as the beach cities, West L.A., West Hollywood, Santa Monica, Studio City and Silver Lake, among others, continue to see the strongest rent appreciation and tenant-investor demand,” Wade said.


Related Articles

arrow_forward_ios
From left: Stockdale Capital Partners' Steven and Shawn Yari with 656 San Vicente Blvd
Stockdale Capital gets early green light for 140K sf medical tower near Cedars-Sinai
Stockdale Capital gets early green light for 140K sf medical tower near Cedars-Sinai
CIM Group's Shaul Kuba and a rendering of 3105 South Western Avenue (CIM, Bittoni Architects)
CIM group files more plans in South LA
CIM group files more plans in South LA
HBC's Richard Baker with  9600 Wilshire Blvd (SFA, Cornell)
Historic Saks Fifth Avenue complex in Beverly Hills eyed for redevelopment
Historic Saks Fifth Avenue complex in Beverly Hills eyed for redevelopment
Clear Capital LLC founding partners (L-R) Daniel Hardy, Eric Sussman, Paul Pellizzon and Greg Worchell with Foothill Ridge apartments, 1334 W. Foothill Blvd., Upland (Clear Capital LLC, Foothill Ridge Apts.)
Clear Capital buys 232-unit apartment complex in Inland Empire
Clear Capital buys 232-unit apartment complex in Inland Empire
A photo illustration of the planned Vermont Lofts project at 966 South Vermont Avenue (SO.LA, Inc., iStock)
Goodbye Dragon, hello housing: Yet another apartment complex planned for Koreatown
Goodbye Dragon, hello housing: Yet another apartment complex planned for Koreatown
Citrus Commons project at 14130 Riverside Drive (Johnson Fain)
Apartments to rise around former Sunkist HQ in Sherman Oaks
Apartments to rise around former Sunkist HQ in Sherman Oaks
From left: Tom Brady, Dillon Rosenblatt, and  Richard Rosenblatt with 3130 Wilshire Boulevard (Kilroy Realty, Getty, LinkedIn)
Tom Brady’s NFT company signs lease in Santa Monica
Tom Brady’s NFT company signs lease in Santa Monica
Vectra CEO Raju Shah and 640 North Sepulveda Boulevard (Vectra, LoopNet)
Mostly vacant Bel-Air office building sells for $32.5M
Mostly vacant Bel-Air office building sells for $32.5M
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...