Los Angeles County

Third Quarter 2015

Investors Look Past Construction Risks, Pursue Assets

The Los Angeles county multifamily market remains robust as organizations expand their payrolls. While the pace of hiring is
slower than its highest level seen during 2013, growth remains broad-based and consistent with a strengthening economy. The
new employees of these firms are seeking apartments at a heightened pace as the swelling prices for single-family homes make
homeownership impossible for many metro residents. Builders have used these factors to justify adding multiple projects to the
pipeline of activity, particularly in downtown Los Angeles, where several luxury towers are underway, and the San Fernando
Valley, where more affordable rents can be obtained. Construction in these two areas will outpace demand this year, prompting
increases in vacancy as more than 7,000 units come online. The outlook is much brighter in the Westside Cities and the South
Bay/Long Beach markets, where technology firms are placing roots and planned completions are more muted. Despite overdevelopment concerns in some areas, vacancy rates will remain sufficiently tight, allowing a rise in average asking rent.
Market participants are unfazed by the construction outlook for multifamily housing, using historically low interest rates
and easy access to commercial credit to bid aggressively on properties throughout the county. The resulting environment
has led to deteriorating first-year yields as potential buyers place their best offers first, particularly on trophy assets in the
Westside Cities and value-add complexes in the San Fernando Valley and South Bay. The average property now yields 5.1
percent, with many prime areas exchanging ownership in the low-4 percent range. Market participants view the elevated
level of construction as a transitory issue, focusing on the structural impediments to homeownership to underpin their thesis. As investors weigh a possible interest rate hike from the Federal Reserve for the first time in nearly a decade, transaction
velocity will stay elevated. Buyers seeking to deploy capital into the metro will take advantage of the increase in listings,
fostering further deterioration in cap rates.

2015 Annual Apartment Forecast

2.4%
increase in
total
employment

8,600
units
will be
completed

50 basis
point
increase in
vacancy

4.8%
increase in
effective
rents

Employment: More than 104,000 workers will find gainful employment this year, a 2.4 percent growth rate. In the previous year, 97,900 jobs were created, a 2.3 percent rise.

Construction: The pace of deliveries will moderate somewhat as more than 8,600 units come
to market this year. In 2014, nearly 10,000 rentals were placed into service.

Vacancy: Growing supply will limit net absorption in apartments this year, ushering in a
50-basis-point increase in vacancy to 3.5 percent by year end. Although the market will
weaken this year, the average vacancy rate will remain incredibly tight.

Rents: The average effective rent will move up 4.8 percent to $1,870 per month this year. Last
year, the average effective rent climbed 6.4 percent.

Economy
Local employers
added
18,200 jobs in the second quarter, improving job creVacancy
Rate

Employment Trends

ation during
the year to2015*
more than 98,700 positions and expanding payrolls
by Submarket
8%
by 2.4 percent. In the previous year, 99,600 workers were hired.

United States

4%

Employment Trends

2%

Metro

United States

3
10%
120

14

15**

Completions

ut

So

-6%
6

11

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by Submarket 2015*
Ba

2%
9

13

12

13

14

15**

Completions

So

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ut

Ba
y

by Submarket 2015*

Sa
n

Do G
wD re G
not w atr
own eera
Sa
ntow ter
nS
Faen
n
rnF
Va aenrdn
a
lleV on
yall do
ey
W
esW
t
s
e
C ids
iti C ets
esi id
tie e
Lo
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sL
Aon
sg
Aeln
egs
el
es

cent to more than $495,000. Meanwhile, the average median household in$1,450
come tickedSales
up 3.4
percent to just under $57,000.
Trends

RentCounty
Trends
$1,000 Effective
Los Angeles
by Submarket
2015* household income for a single-family mortgage
The minimum
qualifying

United States

12

Over
$1,900 the past 12 months, the average single-family house price rose 7.5 per-

6
3

$324
$2,800

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11

15**
15*

with taxes and insurance is more than $112,600 per year. Additionally, the
effective rent was $1,850 at the end of the second quarter. The resulting affordability gap, of nearly $700, and the high minimum qualifying
$1,900
household
income required for mortgages limit the possibility of homeown$212
$1,450
Salesresidents.
Trends
ership forLos
many
Angeles County
$2,350
average
$268

$1,000

$156
Outlook:
The large income gap between the average and the qualifying in$324

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An
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s

9
26%
-6%

14
14

Completions
Home
Price Trends
by Submarket
2015*
Metro

13
13

10%
12
2%

12
12

Ba

11
11

0%
expanded
29 percent and 8.5 percent, respectively. While single-family per$2,800
mitting
remains
well below its 2007 peak, multifamily has set new highs.
$2,350

United States

18%

Ba
y

2% Effective Rent Trends

During
the
last year, multifamily and single-family housing permit issuance
$1,000
by Submarket 2015*

Ba

Metro

2%
1%
26%
-6%
0%

ut
h

Housing
and Demographics
$1,450

Home Price Trends

10%
2%

$1,900
4%

Do G
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Sa
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Fe
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15*

So

14

uSt o
h ut
Bah
yBa

13

So

12

11

18%
3%

8%
$2,800
year,
a 2.4 percent growth rate. In 2014, 97,900 jobs were created, a 2.3
percent
expansion.
6%
$2,350

ut

26%
4%
0%

United
UnitedStates
States

So

Metro
Metro

ut
h

Effective
Rent
Trends
Vacancy
Rate
Outlook:
Los
Angeles2015*
County organizations will add 104,000 workers this
by
Submarket
2015*
0%
by
Submarket

Employment
Home Price Trends

1%

points to 7.6 percent in the second quarter of this year. Economic improve4%
ment
continues to accelerate this progress, with unemployment falling 50
basis
2% points over the past year.
So

15*

comes needed for mortgages will require many potential buyers to put off
$100
$268
homeownership,
all together. This environment
11
12 or eliminate
13
14the possibility
15**
will foster strength in rental rates for the foreseeable future.
h

14

ut

13

So

2%

12

Average Price per Unit (thousands)

Monthly
Rent Monthly Effective Rent Monthly
Vacancy
Rate Rent
Average Price per Unit Average
(thousands)
Price
perEffective
Unit (thousands)
Effective

11

3%

Vacancy Rate

Since
6% its height at 12.6 percent, the unemployment rate was down 500 basis

4%
0%

0
12

Do G
w re
nt at
ow er
n
Fe
rn
a
Va nd
lle o
y

Ba
y

1%

health
4% services sector to add more than 30,300 positions during the year, the
strongest growth in the metro. The trade, transportation and utilities and pro2%
Vacancy
fessional
and
businessRate
services sectors also outperformed, boosting headcounts
by Submarket 2015*
by8%
18,000
and
14,800,
respectively.
0%
W
es
C tsid
iti e
es
Lo
s
An
ge
le
s

Vacancy Rate

3%

18%

6%

Accelerating economic development led organizations in the education and

$212

Sales Trends

Construction
Los Angeles County
$156
$324
Construction
firms completed more than 1,000 rentals during the second

$100
quarter,
bringing
11
12 year-to-date
13
14deliveries
15** to more than 5,000 apartments. The
$268
bulk of development was centered on the Downtown Los Angeles and San
Fernando Valley; the two submarkets received more than 3,800 units.
$212

Robust demand for apartments has led builders to expand the pipeline of

So
ut

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Ba

Number of Units (thousands)

Median
Home
Price of
(Y-O-Y
Change)
Year-over-Year
ChangeChange)
Number of Units
(thousands)
Median
Home Price (Y-O-Y
Change)
Year-over-Year ChangeYear-over-Year Change
Number
Units
(thousands)
Median
Home Price (Y-O-Y

Metro

* Forecast
** Trailing 12-month period through 1Q

$156
multifamily
projects to more than 18,000 rentals slated for delivery through
2018. More than 14,600 will come to market during the next 18 months.
$100

11 60 12
14 construction
15**
More than
percent13of under
apartments are in Downtown

Los Angeles, highlighting the live-work-play mindset that builders are catering toward.

Outlook: Developers will complete more than 8,600 units this year, down

modestly from the nearly 10,000 rentals finished in 2014.

page 2

Marcus & Millichap

Apartment Research Report

Vacancy
Countywide vacancy fell 20 basis points to 3 percent during the second quarEmployment Trends

Vacancy Rate

United States

1%
2%
Properties developed during the 2000s
have average effective rents that are
26% rival, with ownership asking nearly
more than $600 higher than the closest
0%
-6%
11
12
14
15* to
15**
$2,370 per month as builders deliver apartments
loaded 13with amenities
18%
attract tenants.

Completions
10%
Buildings completed during the 1970s
and 1980s
have
average
effective rents
Home
Price
Trends
by Submarket
2015*

12 than both older and newer assets.

that are nearly $200 cheaper per month
Metro
United States
2%
As renters seek more affordable options,9 the spread between rent levels will
26%
tighten considerably.
-6%
11

6
18%

12

13

14

15**

Outlook: Demand for multifamily housing will lead to a 4.8 percent swell in
3
the average effective rent to $1,870 per
month.
Completions
10%

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Ba

ut

So

Sales Trends**

120
2%

by Submarket 2015*

-6%
Transaction activity jumped more than
40 percent as real estate prices contin11

12

13

14

15**

ued to improve, providing fresh incentive for property owners to list. Volume
accelerated throughout 2014 and has remained
elevated during the first six
3
Completions
months of this year.
by Submarket 2015*
0
12

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Ba

While trading spiked dramatically, the average price per unit ticked up 16
So
u

th

9
percent to more than $319,000. Price appreciation
was apparent in the Westside Cities, where the average trade valued
each
apartment
above $425,000.
6
Transactions were most abundant in the San Fernando Valley, the most af3 County.
fordable of the submarkets in Los Angeles

0 investors more opportunity to ex The enhanced listing environment allowed

Do G
w rea
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So
u

th

Ba

pand their portfolios and they did so willingly, scooping up assets in Downtown Los Angeles and the San Fernando Valley at impressive rates. Cap rates
fell 40 basis points to average 5.1 percent by the close of the second quarter.

Outlook: The impending rate hike hinted by the Federal Reserve will encour-

age market participants to evaluate their holdings in the first rising rate cycle
in more than a decade. This will prompt owners to list additional properties,
while investors will use historically low interest rates to bid aggressively on
available assets, fostering robust transaction velocity.

Marcus & Millichap

Apartment Research Report

W
es
C tsid
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s

Sa
n

Do G
w re
nt at
ow er
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Fe
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Va nd
lle o
y

Ba
y
ut
h

So

Effective Rent Trends

$2,350
$1,900
$1,450

Do G
w re
nt at
ow er
Sa
n
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Fe
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Va and
lle o
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W
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Ba
y

ut
h

$1,000
0%
$2,800

by Submarket 2015*

Do G
Do reG
w
nw
ton arteea
Sa
wto r te
nw r
S
na
n
Fne
rFne
Va arnnda
lVlea ond
ylle o
y
W
eW
ste
C ssidt
itiC sei
esit de
ie
Lo
s
sL
oAsn
gAe
nlge
sel
es

Metro

$1,450
2%

months, bringing year-to-date gains to

6.5 percent. Rent growth above infla2%
10%
Home
Price Trends
tion has been the standard due to the high cost
of single-family
housing.

$1,900
4%

$1,000

Sales Trends
Effective
RentCounty
Trends
Los Angeles

$2,800
$324

3%
18%
The average effective rent rose 1.7 percent
to $1,830 during the last three

6%
$2,350

by Submarket 2015*

$2,350
$268
$1,900
$212
$1,450
$1,000
$156
$324

Sales Trends

Los Angeles County

y

15*

Ba

14

So

13

by
by Submarket
Submarket 2015*
2015*

0%
8%
$2,800

So S
utou
h th
Ba B
ya

12

Vacancy
Rate
Effective
Rent
Trends

11

2%

ut

4%
26%
0%

United States

4%

So

Rents

Metro

1%

6%

Ba

augur a 50-basis-point increase in vacancy

3.5 percent byTrends
year end. Despite
2% toEmployment
Home Price Trends
the rise in vacancy, the market remains extremely
tight.
Metro
United States

Vacancy Rate

by Submarket 2015*

0%
8%

3%

Outlook: The higher pace of construction and weaker net absorption will

2%

ut

tenants; the vacancy rate is at 1.2 percent,

the lowest rate recorded. Soaring
1%
effective rents have made the option more
popular among young profession4%
0%
als seeking to live in expensive neighborhoods
together
with
roommates.
11
12
13
14
15*

4%

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nt at
ow er
Sa
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Fe
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s

United States

Vacancy Rate

Metro

6%

So

2%
Employment
Trends
Three-bedroom rentals in Los Angeles County
are the most
demanded by

Average Price per Unit (thousands)

Monthly
Rent Monthly Effective Rent Monthly
Vacancy
Rate Rent
Average Price per Unit (thousands)
Average Price
per Effective
Unit (thousands)
Effective

Number of Units (thousands)

Median
Home
Priceof(Y-O-Y
Change)
Year-over-Year
Change
Number of Units
(thousands)
Median
Home Price (Y-O-Y
Change)
Year-over-Year ChangeYear-over-Year Change
Number
Units
(thousands)
Median
Home Price (Y-O-Y
Change)

1970s developments posting vacancy3%at just 2.2 percent, while pre-1970s

projects registered 2.3 percent.

Vacancy Rate

4%

Pre-1980s construction remains in high demand throughout the metro, with

by Submarket 2015*

8%

$100
$268

11

$212

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ter as demand for apartments continued to accelerate.

Vacancy
has fallen 30
Metro
United States
basis points over the last 12 months.

12

13

14

15**

Sales Trends

Los Angeles County

$156
$324
$100
$268

11

12

13

14

15**

11

12

13

14

15**

$212
$156
$100

* Forecast
** Trailing 12 months through 2Q
Sources: CoStar Group, Inc.; Real Capital Analytics

page 3

15*

Vacanc

Average Price per

14

$150
$100

11

12

13

14

15**

Construction and Vacancy

Sales Trends

$1,820
2%
13

14

15*

$1,610
$1,505

Vacancy Rate Trends

Westside Cities

$1,400
4%

11

12

13

14

15*

3%

Greater Downtown

$2,300
1%
$2,100
0%

11

Sales
12 Trends
13

14

$1,900 South Bay/Long Beach

15*

$300
$1,700

$250 Vacancy Rate Trends

$1,500 San Fernando Valley
11
12
13
14
6%
$200

15*

5%
$150
4%
$100
$3,000
3%
$2,725
2%

Rent Trends

Westside Cities

11

12

11

$2,450
$300

13

14

Sales
12 Trends
13

Greater Downtown

14

15**

15*

$1,900

11

$220

12

13

14

15*

$180

Rent Trends

San Fernando Valley

11
$1,660

12

13

14

15**

* Forecast
$1,585
** Trailing 12-month period through 2Q

Sales Trends

$200

While the11average
percent above last years levels in Down12 effective
13 rent
14is 4.6
15**

$220 rents in the last six

4% Los Angeles, property owners have been slashing
town
months to fill vacant space. Rents are more than $90 per month off the high
$180
2% in the fourth quarter of 2014.
seen
Sales Trends
Fernando Valley
The
robustSan
concentration
of development limited 2000s
$140 assets to small gains
0%
11
12
13
14
13
in$220
effective
rents,
particularly
in the 15*
Mid-Wilshire submarket,11which12recorded
a 1.6 percent advancement. Strong competition from amenities-laden rentals
has$200
provided switching options for high-end tenants.
Vacancy
Rate
Trendseffective rent growth will slow dramatically
Sales Trends
Outlook:
The
pace
of average
as
$180
Westside Cities
Westside Cities
numerous luxury towers come to market in the second half of the year, limiting4%
owners to just a 1.2 percent uptick year over year.$560
$160
3%

$140
Sales
Trends
11 ** 12

13

14

15**

14

$470
$380

$200 than $280,000 as

The
0%average price per unit swelled 6.8 percent to more
11

12

13

14

15*

3%

Marcus & Millichap

11

12

13

11

12

13

14

several high-profile trades in Downtown Los Angeles and West Hollywood

at more than $350,000 per unit brought up the averages. Value-add transactions in East Hollywood traded for $230,000 per unit.
Sales Trends
Vacancy Rate Trends
First-year San
yields
have slid
20 basis points to 4.7 percent as a number
of deals
Fernando
Valley
San Fernando
Valley
in 6%
the Mid-Wilshire area traded in the low-4 percent range.
The
impact
would
$220
have been greater without a surge of trading in Koreatown and Hollywood in
the5%mid-5 percent range.
$200
$180
les4%
area will stay active despite the recent pickup in construction.
These buyers are focused on the longer-term supply and demand picture.

$1,435

$380

$470

Outlook: Investors seeking to position in the Greater Downtown Los Ange-

Westside Cities

$560

page 4 $470
$1,360

14

long-term positions in the face of short-term weakness. The average price per
$290
1%
transaction
topped $10 million for the first time in three years.

$260

$1,510

the4%same period one year ago, as increased construction

$200 limited the effects
of accelerating demand. Improvement was most pronounced in Hollywood,
where
$150
2% vacancy fell 60 basis points to 3.4 percent.
Sales Trends
Outlook: Construction
firms will bring more than 4,400 units to market this
Westside Cities
$100
0%
11 foster
12 average
13
12 several
13 years.
14 The 15*
year,
resulting environment will
$560the11most in
vacancy of 3.7 percent, 10 basis points above a year ago.

2%
Over
the past year, transaction velocity jumped 22.4 percent as investors take

$2,175

$140

$250

Rents Vacancy Rate Trends

Sales Trends
$380
Greater Downtown
Greater Downtown
The
average effective rent jumped 4.5 percent to $2,120 per month, with
8%
$300
strong
$290 gains in all three submarkets. Hollywood outperformed the broader
area
as rents climbed 5.6 percent.
6%
$260

Rent Trends

2%

6%

$140
Vacancy
fell
basis points
in14the second
quarter to 3.4 percent, even with
11 20 12
13
15**

Average Price per Unit (thousands)

12

Average Price per Unit (thousands)

$1,715
0%
11

VacancyAverage
Rate Price per Unit (thousands)

Rent Trends

South Bay/Long Beach

VacancyAverage
Rate Price per Unit (thousands)

Monthly Effective Rents

Vacancy Rate

6%

Average Price per Unit (thousands)

largest
$300 source of construction in the county. The trend is set to continue;
developers will widen the multifamily pipeline to nearly 12,000 units with
$260 dates scheduled through 2018.
delivery
Vacancy
Rate Trends
Sales
Trends
Downtown
Los Angeles
received the two largest completions of
the past
12
$220 South Bay/Long Beach
South Bay/Long Beach
months: Eastown Apartments in Hollywood containing 535 apartments and
8%Santa Fe on Santa Fe Avenue in Los Angeles with
$300
One
438 rentals. Both proj$180
ects highlight the renewed emphasis on urban development.

8%

4%

Vacancy
Rate Price per Unit (thousands)
Average

Builders brought
than 2,600 rentals to market during the last year, the
Greatermore
Downtown

Greater Downtown

Average Price per Unit (thousands)

13

Vacancy Rate

5*

12

Vacancy Rate Trends

Average Price per Unit (thousands)

Average Price per Unit Monthly
(thousands)
Effective RentsVacancy
Monthly Effective Rents
Vacancy Rate
Rate

11

$200

Downtown Los Angeles Apartment Market

e per UnitMonthly
(thousands)
Effective Rents

5*

2%
0%

5*

5*

4%

14

15*

2%

11

12

13

14

15*

$160
u

Apartment Research Report

$140

11

12

13

14

13

14

15*

Westside Cities Apartment Market

Construction and Vacancy

Rent Trends

Westside
Cities
Builders completed slightly more than 440 rentals
in the Westside
Cities over

do little to meet the demand for new $1,585

apartments. Overall, the market will
2%
contract 80 basis points to 2.3 percent.

$1,505

$2,100

$1,900

$1,700

$1,500

$3,000

$2,725

$2,450

$2,175

$1,900

$1,660

$1,585

$1,510

12

Rents

13

14

15*

12

13

14

15*

$1,435

Outperformance in Brentwood/Westwood/Beverly Hills and Palms/Mar Vis-

$1,360
ta submarkets led the average effective rent
to climb 6.6 percent year over year
11
12
14
15*
Rent Trends
Vacancy
Rate13
Trends
to
more
than
$2,700
per
month.
Greater Downtown
Greater Downtown

Properties in Palms/Mar Vista reported8%average effective rents of $2,175 per

month at the close of the second quarter, more than $150 higher than the
6%gains, prices remain more than $700
same period last year. Despite the recent
below the other enclaves in the Westside Cities.
Vacancy Rate

$2,300

11

$1,510
0%
11

4%

The average effective rent in Brentwood/Westwood/Beverly Hills advanced

13.1 percent to nearly $3,000 per month

2% over the last year as a lack of development and robust demand pushed prices higher.
0%

Outlook:
11
12
13Demand
14

12
13
15*
will
growth14in supply,
15* remain well ahead of11the minimal
allowing the average effective rent to rise 6.2 percent to $2,800 per month.

Sales
Trends **
Rent Trends

Vacancy Rate Trends

Westside Cities

Westside Cities

Transaction activity was largely unchanged over the past four quarters as a

lack of listings held back deal flow. The4%

vast majority of transactions targeted
the Beverly Hills/Century City/UCLA, Santa Monica and Greater Culver
3%
City submarkets.
Vacancy Rate

$1,400

$1,660
4%

Outlook: While construction will quicken in the latter half of this year, it will

The average price per unit climbed to

2%more than $500,000 per unit as a

number of deals in the West County submarket traded at above $700,000 per
1% price appreciation, bidding aggresunit. Market participants are focused on
sively for assets located in prime locations.
0%

11
12rates13
Cap
in

14 transactions
15*
11 in the
12low-413percent
14 range
15*for
closed
generally start
the best-quality properties, while the bulk of trading is in the mid-4 to high-4
percent range.
Trends
Vacancy
Rate
Rent
Outlook:
Rising asset values will move current
owners
to Trends
consider listing,
San Fernando Valley
San Fernando Valley
while potential buyers will seek to deploy capital ahead of the anticipated
6%
Federal Reserve interest rate hike.

Marcus & Millichap

Apartment Research Report 5%

cancy Rate

$1,610

Monthly Effective Rents

Vacancy Rate

Monica/Marina del Rey and Palms/Mar Vista submarkets. The pace of deliveries will also rise to more than 480 rentals
$2,175 as crews finish work on NMS@
Culver City in Culver City and Sway in Santa Monica. The two projects will
supply 130 and 120 units, respectively.$1,900
Rent Trends
Vacancy
Rate13Trends
11
12
14
15*
South
Bay/Longflocked
Beach to more affordable housing South
Beach
Tenants
in theBay/Long
Palms/Mar
Vista area as
vacancy fell 90 basis points, while the Santa
$1,820
8% Monica/Marina del Rey submarket vacancy plummeted 170 basis points to 2.3 percent. As a result, vacancy
Rent
Trends making it the
$1,715
in the Westside Cities fell 80 basis points
2.1 percent,
6% to just
San Fernando Valley
tightest market in Los Angeles County.

4%

Vacancy Rate
Rate
Average
Price per Unit (thousands)
Average Price per UnitMonthly
(thousands)
Monthly Effective RentsVacancy
Effective Rents Average Price per Unit (thousands)
Monthly Effective Rents

For the remaining six months of 2015,

development will shift to the Santa
$2,450

12

13

14

15*

$1,505

Vacancy Rate Trends

Westside Cities

$1,400
4%

11

12

13

14

15*

3%

Rent Trends

2%

Greater Downtown

$2,300
1%
$2,100
0%
11 Sales
12 Trends
13
14
$1,900 South Bay/Long Beach

15*

$300
$1,700

$250 Vacancy Rate Trends

$1,500 San Fernando Valley
11
12
13
14
6%
$200

15*

5%
$150
4%
$100
$3,000
3%

Rent Trends

11

Westside Cities
12

13

14

$2,725
2%
11 Sales
12 Trends
13
14
$2,450 Greater Downtown

15**

15*

$300
$2,175
$260
$1,900

11

$220

12

13

14

15*

14

15**

14

15*

$180

Rent Trends

San Fernando Valley

$140
$1,660

11

12

13

$1,585

Sales Trends
Westside Cities

$1,510
$560
$1,435
$470
$1,360

11

$380

12

13

$290
$200

11

12

13

14

15**

* Forecast
** Trailing 12 months through 2Q
Sources:
CoStarTrends
Group, Inc.; Real Capital Analytics
Sales

per Unit (thousands)

Monthly Effective Rents

$3,000
the past 12 months. The bulk of the new
stock was brought to market in the
Brentwood/Westwood/Beverly Hills enclave, while the largest project was a
$2,725
100-unit affordable housing complex in
Venice.

$1,715
0%
11
$1,610

Average
Vacancy
Rate Price per

12

VacancyAverage
Rate Price per Unit (thousands)

11

South Bay/Long Beach

$1,820
2%

VacancyAverage
Rate Price per Unit (thousands)

$1,500

4%

Vacancy Rate

$1,700

Vacanc
Monthly Effective Rents

Monthly Eff

$1,900

San Fernando Valley

$220
$200
$180

page 5

5*

5*

Rent Trends

Westside Cities
13

14

15**

$2,725
2%
11 Sales
12 Trends
13
14
$2,450 Greater Downtown

15*

11

$220

12

13

14

15*

14

15**

4%

$260
$220

San Fernando Valley

$180

Construction
crews completed 1,100 apartments over$140
the past year, nearly a
0%
11

12

13

14

15*

11

12

13

14

$220less than the prior four-quarter period. Despite the recent slowdown,
third
developers remain highly active in the area; more than 3,300 will be com$200 in the next 18 months.
pleted
Vacancy Rate Trends
Sales Trends
The
largest complex
Wood$180
Westsidefinished
Cities during the last year was The Millennium
Westside
Cities
land Hills. The 395-rental, three-building project came online during the
4%
$560
fourth
$160 quarter of 2014. Another notable addition to the area was Camden
Glendale
on San Fernando Road, which contains nearly
300 units.
$470
3%
$140

12
13
14 in 15**
Vacancy 11
levels were
unchanged
the second quarter at 2.8 percent, down

Outlook:
An influx of completions concentrated in the
back half of the year
$200
0%

11
12
13
12 20 basis
13 points
14
15*
will lead 11vacancy
higher
to 3 percent in 2015.
Weakness
is
likely to remain transitory as tenants seek cheaper alternatives.

14

$180

Rent Trends

San Fernando Valley

$140
11
12
13
14
$1,660

Rents
15**

$1,585

Sales Trends

11

$380

12

13

14

15*

$290
$200

San Fernando Valley

The6%average effective rent climbed 6.8 percent to $1,615

$220 per month amid

4%
effective
rent advancement of 11.8 percent to $1,460$180
during the last year as
tenant demand surged. Despite the improvement, rents remain more than
3%
$160
$500 below other parts of the Valley.

$560
$1,435
$470
$1,360

San Fernando Valley

Properties in the Van Nuys/Northeast San Fernando Valley recorded average

Westside Cities

$1,510

Sales Trends

Vacancy Rate Trends

widespread demand for more affordable housing in Los Angeles County. All
submarkets
posted high single-digit or double-digit gains.
5%
$200

The2%accelerated pace of economic expansion led more

$140 affluent renters to
11

12

13

14

15*

11

12

13

Woodland Hills rentals, where the average effective rent swelled 8.9 percent
to more than $1,920 per month.

Outlook: Accelerated construction in the Burbank/Glendale/Pasadena and

11

12

13

14

15**

Van Nuys/Northeast San Fernando Valley submarkets will limit the pace of
effective rent gains to 6.5 percent this year.

Sales Trends **

Sales Trends

Trading volume rose 20 percent as investors sought relatively higher yields in

San Fernando Valley

$220

the mid- to high-5 percent range. Sellers were motivated by tightening conditions and rising asset values in key neighborhoods.

$200

The average price per unit rose to more than $210,000, up 16 percent com-

pared to the prior year. A number of deals in Burbank and Glendale exchanged ownership at more than $330,000 per unit, elevating the average.

$180

Cap rates sank broadly to the mid-5 percent range, down 30 basis points over

$160
$140

11

12

* Forecast
** Trailing 12-month period through 2Q

page 6

13

$380Assets in the North102%

basis points from the same period in the prior year.
ridge/Northwest San Fernando Valley area registered the strongest growth as
$290
1%
vacancy
fell 50 basis points to 2.4 percent.

$300
$2,175
$260
$1,900

12

$300

Average Price per Unit (thousands)

15*

5%
$150

12

11

2%
Construction
and Vacancy
Sales
Trends

Vacancy Rate Trends

4%
$100
11
$3,000
3%

6%
$200

Greater Downtown

San Fernando Valley Apartment Market

$300
$1,700

$250
San Fernando Valley
$1,500
11
12
13
14
6%
$200

Greater Downtown

8%
$290

Average Price per Unit (thousands)

15*

Price per Unit (thousands)

VacancyAverage
Rate

$2,100
0%
11 Sales
12 Trends
13
14
$1,900South Bay/Long Beach

Price pe
VacancyAverage
Rate

$2,300
1%

$380

Average Price per Unit (thousands)

5*

Greater Downtown

Vacancy Rate

5*

AverageRate
Price per Unit (thousands)
Average Price per UnitMonthly
(thousands)
Vacanc
Monthly Effective RentsVacancy
Effective Rents Average Price per Unit (thousands)
Monthly Effective Rents

5*

Average Price per Unit (thousands)

5*

2%

13

14

15**

the last 12 months. Assets in Sherman Oaks an Woodland Hills traded in the
high-4 percent range, while several North San Fernando Valley properties
were contracted with implied yields in the high-5 percent range.

Outlook: As investors continue to be priced out of more expensive mar-

kets in Los Angeles County, demand for San Fernando Valley complexes will
mount. Assets near major thoroughfares and employment hubs will receive
multiple offers, often in excess of the asking price.
Marcus & Millichap

Apartment Research Report

14

Rent Trends

$1,900

The average asking rent advanced 6.2 percent during the last year, ending the

$1,700
second quarter at $1,765 per month, as
potential tenants outweigh available
rentals. The area provides a cheaper alternative to the Westside Cities where
$1,500
rents are more than $500 higher per month.
11
12
13
14
15*

Assets in the South Bay posted average rental rates that ascended 6.8 per-

cent to more than $2,040 per month as renters flocked to apartments within
proximity to their employers. Properties built inRent
the 2000s
were in particular
Trends
demand, expanding 8.9 percent to more than $2,675
perCities
month.
Westside
Monthly Effective Rents

more elevated levels of development. However, the pace of improvement will

$2,175online during the next 18 months.
marginalize as more than 1,700 units come
$1,900

Rent
SalesTrends
Trends **

Vacancy
Rate13
Trends
11
12
14

South Bay/Long Beach

South Bay/Long Beach

15*

Transactions jumped significantly during

the last year as the resolution of the
8%

1,610

4% unchanged, rising 2.3 percent for

The average price per unit was essentially

Monthly Effective Rents

Vacancy Rate

1,715

$1,660

1,505

the year to more than $260,000 per unit.

Properties in the Torrance submar$1,585
2%
ket surged 30 percent to more than $225,000
per unit.

1,400

$1,510
First-year yields fell 10 basis points to0%
5 percent as higher-quality assets en-

1,900

11
12
14
15*
12
13
14
15*
couraged
buyers
to bid
more aggressively. Investor
focus 13
has been
primarily
$1,435
on complexes in Long Beach, where yields are higher than the average.

Outlook: Strengthening employment growth

$1,360 in the area will lead investors to

11
12
14 returns
15*
Rent
Trends
Rate
Trends
deploy
capital in the South Bay/Long BeachVacancy
markets,
where13
first-year

Greater Downtown

Greater Downtown

can be more than 100 basis points above comparable offerings.

8%

Marcus & Millichap

6%
Apartment Research Report
cancy Rate

2,100

11

4%

13

14

15*

Greater Downtown

6%

Rent Trends

4%

South Bay/Long Beach

$1,820
2%
$1,715
0%
11
$1,610

12

13

14

15*

$1,505

Vacancy Rate Trends

$1,400
4%

While all Long Beach vintages benefited from rising average asking rent,

Outlook: Lower rental rates will keep

demand higher than supply despite
$2,450

12

8%

$3,000

1970s and 1980s registered gains of 10.5 percent to more than $1,400 per
$2,725
month and 9.5 percent to more than $1,550,
respectively.

11

Vacancy Rate Trends

Vacancy Rate
Monthly Effective Rents

Monthly Effective Rents

nating the improvement seen in the past year. While demand for apartments
remains robust, the elevated pace of construction is limiting further tightening in the market.
Rent Trends
Greater scene
Downtown
Outlook: The rise of the Silicon Beach technology
has produced re$2,300 yet the expansion of supply will
markable demand for multifamily housing,
push vacancy 40 basis points higher to 3.2 percent.

Rents

2%
0%

Vacancy ticked up 10 basis points to 2.9 percent

elimi11 in the
12 second
13 quarter,
14
15*

$2,100

Average Price per Unit (thousands)

$1,400

4%

Average
Vacancy
Rate Price per Unit (thousands)

at Play Vista in the Alsace neighborhood

$1,610highlighted completions over the
past year. Meta Housing Corp. also completed nearly 100 affordable-housing
rentals through two separate projects in$1,505
San Pedro and Torrance and a seniorhousing facility in Long Beach.

6%

Westside Cities

11

12

13

14

15*

3%
2%

Rent Trends

Greater Downtown

$2,300
1%
$2,100
0%
11 Sales
12 Trends
13
14
$1,900 South Bay/Long Beach

15*

$300
$1,700
$250 Vacancy Rate Trends
$1,500 San Fernando Valley
11
12
13
14
6%
$200
5%
$150

15*

Rent Trends

Westside Cities
4%
$100
11
12
13
$3,000
3%

14

15**

* Forecast
$2,725
** Trailing 12 months through 2Q
2%
Group,
Real Capital
11 Sources:
12CoStar
13 Inc.;14
15*Analytics
Sales
Trends
$2,450 Greater Downtown

$300
$2,175
$260
$1,900
$220

page 7
11

12

13

14

15*

VacancyAverage
Rate Price per Unit (thousands)

$1,715

The 260-unit Playa del Oro West in Playa del Rey and the 220-unit Runway

South Bay/Long Beach

8%
Vacancy Rate

Monthly Effective Rents

ters, the fastest pace of construction in$1,820

the current cycle. In the previous year
just 170 apartments came online.

port dispute encouraged buyers to place capital. The average transaction price
was more than $12 million, up more than
40 percent
year over year, as larger
Rent Trends
6%
San Fernando Valley
properties dominated trading.

2,300

Vacancy Rate Trends

South Bay/Long
Beach
Builders brought more than 750 rentals to market
during the
last four quar-

VacancyAverage
Rate Price per Unit (thousands)

Construction and Vacancy

Vacancy Rate
Vacancy
Rate
Average
Price per Unit (thousands)
e per Unit (thousands)
Monthly Effective Rents
Monthly Effective Rents

1,820

South Bay/Long Beach Apartment Market

Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

Despite volatility surrounding economic growth in China and Greeces status

Visit www.NationalMultiHousingGroup.com or call:
John Sebree
Vice President, National Director
National Multi Housing Group
Tel: (317) 327-5417
john.sebree@marcusmillichap.com

Prepared and edited by

Aaron Martens
Research Associate, Research Services

in the eurozone, the yield on the 10-year U.S. Treasury is trading near 2.25
percent. Economic data is showing improvement following weak first quarter
GDP, with market participants now positioning for the December meeting as
the most likely starting point for an interest rate hike. The latest comments
from Federal Reserve Chairwoman Janet Yellen, however, indicate that the
exact moment is still data-dependent.

The Federal Open Market Committee has committed to a policy of lower

for longer as it assuages fears that the first interest rate increase will disrupt
the recovery. The first policy rate change is expected to be just 25 basis points,
and measures will remain accommodative for some time.

Agency lenders are underwriting 10-year multifamily loans ranging between

For information on national apartment trends, contact
John Chang
First Vice President, Research Services
Tel: (602) 687-6700
john.chang@marcusmillichap.com
Los Angeles Office:
Enrique Wong
Vice President/Regional Manager
enrique.wong@marcusmillichap.com
515 South Flower Street, Suite 500
Los Angeles, California 90071
Tel: (213) 943-1800
Fax: (213) 943-1810
West Los Angeles Office:
Tony Solomon
Vice President/Regional Manager
tony.solomon@marcusmillichap.com
12100 West Olympic Boulevard, Suite 350
Los Angeles, California 90064
Tel: (310) 909-5500
Fax: (310) 909-5510
Long Beach Office:
Damon Wyler
Regional Manager
damon.wyler@marcusmillichap.com
One World Trade Center, Suite 2100
Long Beach, California 90831
Tel: (562) 257-1200
Fax: (562) 257-1210
Encino Office:
Adam Christofferson
First Vice President/District Manager
adam.christofferson@marcusmillichap.com
James Markel
Associate Regional Manager
jim.markel@marcusmillichap.com
First Financial Plaza
16830 Ventura Boulevard, Suite 100
Encino, California 91436
Price: $150
Marcus & Millichap 2015
www.MarcusMillichap.com

4.3 and 4.7 percent with average LTVs from 55 to 75 percent. Portfolio lenders are offering similar loan-to-value ratios with interest rates between 3.85
and 4.50 percent as underwriters have become more competitive in an effort
to do business. Floating bridge loans for stabilized assets will require LTVs
of 70 percent and price with a spread between 250 and 425 basis points over
LIBOR, while value-add transactions will be underwritten at 80 percent LTV
(60 to 65 percent of cost) with a 300- to 475-basis-point spread.

Total CMBS issuance is expected to top 2014 levels this year as $100 billion to

$125 billion is underwritten. A wave of pre-crisis loans will start to come due
over the next few years, prompting refinancing as current owners renegotiate
the capital structure of their assets. Through April, $35.8 billion in CMBS
had been originated, underscoring the availability of credit as credit unions,
insurance companies and alternative asset managers expanded their offerings.

Submarket Vacancy Ranking

Vacancy
Rank Submarket
Rate
1
South Los Angeles
1.5%
2
Southeast Los Angeles
1.9%
3
Palms/Mar Vista
1.9%
4
East Los Angeles
2.0%
5
Brentwood/Westwood/Beverly Hills
2.1%
6
Santa Monica/Marina del Rey
2.3%
7
Van Nuys/NE San Fernando Valley
2.3%
8
Northridge/NW San Fernando Valley
2.4%
9 Mid-Wilshire
2.6%
10
South Bay
2.8%
11
Long Beach
3.0%
12
Santa Clarita Valley
3.1%
13
Sherman Oaks/North Hollywood/Encino 3.2%
14
Burbank/Glendale/Pasadena
3.3%
15
Antelope Valley
3.3%
16
Hollywood
3.4%
17
Woodland Hills
3.6%
18
South San Gabriel Valley
3.7%
19
North San Gabriel Valley
4.7%
20
Downtown Los Angeles
5.0%

Y-O-Y Basis
Point Change
190
150
90
10
10
170
-10
50
-30
-10
-20
120
0
0
280
60
30
-160
-150
0

Effective
Y-O-Y
Rents
% Change
$1,408
3.6%
$1,391
6.0%
$2,175
7.1%
$1,189
-2.3%
$2,939 13.1%
$3,091
4.9%
$1,403 11.8%
$1,464
8.5%
$2,035 3.6%
$2,042
6.4%
$1,571
7.6%
$1,698
4.2%
$1,964
7.9%
$1,979
5.6%
$923
8.8%
$2,187
5.3%
$1,923
8.5%
$1,425
4.4%
$1,344
3.4%
$2,129
4.7%

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to
the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; CoreLogic, Inc.; Economy.com; National Association of Realtors; Real Capital Analytics; MPF Research; TWR/Dodge Pipeline; U.S. Census Bureau.