Commercial Los Angeles Market Report Q4 2023
As the U.S. economy demonstrates resilience, the commercial real estate market presents a complex 2024 picture marked by sector-specific hurdles and possibilities. The ongoing adjustment to hybrid work models further reduces the demand for office spaces, leading to a rise in vacancies. Nevertheless, the core indicators for the multifamily, retail, and industrial sectors are strong, showcasing diverse outcomes within the commercial real estate landscape.
Multifamily Section
With mortgage rates hovering around 7%, the appeal of apartment buildings is on the rise. This increase is mainly due to higher mortgage rates pushing homeownership out of reach for many, prompting a shift towards renting instead. This shift has resulted in a dramatic 120% increase in net absorption of rental apartments compared to the previous year. However, this heightened demand has not decreased vacancy rates, as the completion and introduction of new apartment units into the market have kept pace with demand. The influx of new residential offerings is sufficient to meet the rising demand, preventing a drop in vacancy rates. In the first month of the year, the vacancy rate in the multifamily sector stood at 7.6%.
New Data Released: The National Association of Realtors has just published the latest figures for the commercial real estate market in the Los Angeles, Long Beach, and Anaheim areas.
Multifamily Los Angeles Quarter 4, 2023
In the multiunit sector of the Los Angeles real estate market, there's been a notable change from 2022 to 2023. In the fourth quarter of 2023, 849 more rental units were occupied compared to the 254 units that were not occupied in the same period the year before. This suggests that more people are renting homes now. Despite this increase in rentals, the growth in the price landlords ask for rent slowed to just 0.1%, much less than the 3.1% growth seen previously. The average rent price they're asking for is about $2,222, with the actual amount tenants agree to pay being slightly less, around $2,206 per unit.
Interestingly, even though more people rented homes, the percentage of empty houses, or 'vacancy rate'’ increased slightly from 4.4% to 5.0%. The overall number of housing units available also increased, with 11,314 new units coming onto the market, more than last year's 9,163. This could be one reason why the vacancy rate hasn't decreased—because more places are available for rent. Finally, the 'market cap rate,' a measure used to understand the return on an investment property, increased from 4.2% to 4.7%, indicating potentially higher returns for property investors.
Office, Industrial, And Office Spaces In Los Angeles
Los Angeles's demand for office, retail, and industrial spaces is weaker than the national average. This has led to a significantly slower absorption rate for these spaces, resulting in rental growth rates and vacancy levels that are less favorable than nationwide figures. Despite these challenges, it's important to note that Los Angeles's overall market conditions present unique opportunities and dynamics distinct from national trends.
Bottom Line
If you're considering the future of your commercial investments—warehouses, retail spaces, industrial, or other commercial properties—staying informed with the latest market data is crucial. Whether you're considering holding or selling your assets, understanding current market trends and valuations can guide your decision-making process.
Should you require an appraisal of your commercial properties in Los Angeles or its surrounding areas, or if you're contemplating selling, we invite you to contact us. We offer complimentary market analysis services that can provide valuable insights into your property's value in today's market. Our expertise also extends to assisting you in selling your commercial properties, ensuring a smooth and successful transaction.