Study confirms market heat, pinch on apartments at big complexes

Composite of three indexes finds decade-high rise in rents across region, vacancies at 22-year low

(iStock, Photo illustration by Priyanka Modi)
(iStock, Photo illustration by Priyanka Modi)

As the apartment market rebounds from the pandemic, rental prices in larger complexes across Southern California have seen the biggest gain in a decade while vacancy rates have sunk to a 22-year low, according to a recent study.

A composite of three rental indexes shows the rent asked for a vacant unit in Los Angeles County rose an average 10 percent from during the fourth quarter of 2021 compared to a year earlier, according to the Orange County Register. The jump in rents ended the doldrums that dampened rents during the pandemic.

At the same time, advertised apartment rents in Orange County increased an average 18 percent during the final quarter, while the Inland Empire saw a 17 percent hike.

The totals come from the Southern California News Group, which crunched the composite by averaging fourth-quarter data compiled by apartment trackers RealPage, Moody’s Analytics-Reis and CoStar.

The study found that vacancy rates plunged across the three Southern California markets.

CoStar records dating back to 2000 found that vacancy rates fell to the lowest level last spring, and to their lowest levels in RealPage and Moody’s-Reis records going back to 2010, according to the newspaper.

Vacancies ticked up slightly in the final quarter of 2021, according to composite data, averaging 2.2 percent in Orange County, 2.3 percent in the Inland Empire and 3.3 percent in Los Angeles County.

“There is just nothing available,” said Richard Green, director of USC’s Lusk Center for Real Estate. “When you’re looking at 2 percent vacancy or 2.5 vacancy, that’s basically zero.”

Rents generally dip when vacancies exceed 5 percent, and rise when they’re below 5 percent. Rents in Los Angeles cratered at the dawn of the pandemic, but have sprung back, he said. In O.C., “they’ve just gone gangbusters.”

Composites for the the three rental indexes show Orange County’s average rent at the end of 2021 was $2,432 a month, or $368 a month more than in the fourth quarter of 2020.

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The L.A. County average was $2,264 a month, up $205 in a year. The Inland Empire average was $1,873 a month, up $272.
The year-over-year gains were the largest in the index composite since 2011.

Because research firms focus on larger, professionally managed apartment complexes,the statistics are a fraction of the 2.8 million rental households living in L.A., Orange, Riverside and San Bernardino counties.

For smaller operators and mom and pop landlords, the numbers tell another story.

While L.A. County rents have rebounded during the past six months, they have yet to catch up to March 2020 lease rates, according to the Apartment Association of Greater Los Angeles, made up mainly of owners with fewer than 10 properties.

“Our vacancies are down, definitely down, but our rents are not at pre-pandemic levels,” said Matt Williams, principal for Williams Real Estate Advisors, which manages 650 units in Los Angeles, primarily in small buildings.

Meanwhile, 18 percent of Southern California tenants were behind in their rent during the period ending Jan. 10, according to a U.S. Census’ House-hold Pulse Survey. Before COVID-19, property managers say less than 10 percent missed rent payments.

While the pandemic drove work-from-home employees from costly job centers in L.A. and Orange counties to cheaper rentals in the Inland Empire, that has started to change. Lower vacancy rates imply that workers may be moving back.

“Employers are getting their employees to come back to work,” said Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles. “People who may have migrated out of these urban areas are probably coming back.”

[OCR] – Dana Bartholomew

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