MULTI UNIT RESIDENTIAL INVESTMENT FORECAST-LOS ANGELES METRO 2023
Apart from broader economic headwinds, Los Angeles County’s apartment sector faces several local happenings that will push year-end vacancy to its highest point since 2010.
Beginning in February, tenants across Los Angeles proper must pay their current monthly rent to avoid eviction, with a requirement to pay back all outstanding rent by August. While some tenant protections will remain, the expiration of the moratorium should place eviction activity beyond the pre- pandemic rate.
Meanwhile, the volume of units slated for delivery in 2023 will rise by 7,000 on an annual basis. Greater Downtown Los Angeles is the epicenter of up-coming completions. Here, an estimated 10,000 apartments will be added at a time when local Class A vacancy is on par with the long-term average. This suggests local concessions usage and luxury availability will rise over the near term. Elsewhere, Westside Cities and the Greater San Fernando Valley should also feel some supply-side pressure, with each expected to add more than 2,900 units.
The wave of rental additions noted across the Los Angeles metro area should continue beyond 2023, as at least 50 conventional apartment projects broke ground last year. Activity in Class C-heavy submarkets reflects buyers’ outlook. Home to a nationally tight lower-tier vacancy rate despite its sizable inventory, the metro area will remain a focal point for investors targeting older complexes with fewer than 30 units.
The recent approval of Proposition ULA — which places a 4.0 percent to 5.5 percent tax on the sale of properties valued at more than $5 million in the city of Los Angeles — may provide near-term opportunities for buyers targeting these complexes, if owners decide to dispose prior to the measure taking effect.
Areas with some of the most affordable rents should continue to appeal to investors, as these localities should record stable demand for the foreseeable future. South Bay cities and Southeast Los Angeles may top investors’ lists, as each locale entered this year with 1 to low-2 percent Class C vacancy.
Sources: Co-Star Group & Real Capital Analytic
Commercial Real Estate has remained Resilient according to JP Morgan-Chase
According to JP Morgan, while the future of the office is unclear, commercial real estate has remained resilient in the first half of 2023.
- Multifamily rental costs rising more slowly:Multifamily properties are still going strong. The national vacancy rate for multifamily was at 4.5% at the end of 2022, according to Moody’s Analytics, even as the rate of rent increases fell. Vacancy rates vary widely across metro areas, but the median vacancy rate nationwide is 3.9% as of April.
- Increasing affordable housing:The country’s affordable housing supply continues to lag far behind demand. A multipronged method to growing the housing supply is critical moving forward. Efforts may include finding creative ways to preserve, build and finance affordable housing—the primary focus of the firm’s Capital Solutions group—and working with public entities to create zoning variances that allow greater density in residential areas.
- The strength of retail: E-Commerce accounts for roughly 15% of retail, but that doesn’t mean consumers can get everything online. There are still services that favor or even require in-person visits. For example, trips to the nail salon, barbershop and sports bar are still standard.
- Industrial may be stabilizing:Fueled by e-commerce and an everything -on-demand economy, industrial has been booming for years.. While the asset class remains healthy, it may be starting to soften. The vacancy rate for distribution and warehouse space was 4.1% throughout the second half of 2022—a record low, as the rate has steadily declined each quarter since the end of 2020. The rate rose 10 basis points in the first quarter of 2023 to 4.2%.
- Office space still up in the air:Remote and hybrid work have largely reduced demand for office space. Still, A-class properties are performing well. Office properties with leases of 10 years or more may be able to ride out the market correction. But B- and C-class office buildings—especially those located with shorter leases outside prime locations—face challenges as the workplace evolves.
Unaffordable Prices Are Back on Top as Most Common Reason Buyers Can’t Make Purchase
BY ROSE QUINT on FEBRUARY 1, 2023 • (0)
An earlier post revealed that 65% of buyers who were actively engaged in the process of finding a home in the fourth quarter of 2022 have spent 3+ months searching for a home without success. The inability to find an affordable home (45%) is the most common reason buyers looking for 3+ months can’t make a purchase. In second place follow the inability to find a home in a desirable neighborhood and getting outbid by other buyers (tied at 30%).
When asked what they are most likely to do next if still unable to find a home in the next few months, 46% of active buyers searching for 3+ months said they will continue looking for the ‘right’ home in the same location (down from 50% a quarter earlier); 38% will expand their search area (up from 35%), 23% will accept a smaller/older home (down from 33%), and 16% will buy a more expensive home (down from 28%).
Meanwhile, the share who plan to give up their home search until next year or later fell to 21%, down from 28% in the third quarter. This is the first time the share has declined in six quarters.
**Results come from the Housing Trends Report (HTR) – a research product created by the NAHB Economics team with the goal of measuring prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets. The HTR is produced quarterly to track changes in buyers’ perceptions over time. All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult. Results are seasonally adjusted. A description of the poll’s methodology and sample characteristics can be found here. This is the final in a series of six posts highlighting results for the 1st quarter of 2022.
Measure Q Property Tax Increase
One of the biggest changes for Long Beach property owners will be a property tax increase due to Measure Q’s adoption in November.
The $1.7 billion bond measure will help modernize LBUSD schools and it will raise property taxes by $60 for every $100,000 of assessed value.
Tweaks to statewide housing law will also change how and where housing is allowed to be built in the city. Senate Bill 6 allows housing in areas generally permitted for retail or office space if the project meets certain requirements. Another law, AB-2097, will require cities to show proof that a parking minimum is needed for a project to avoid negative impacts to the neighborhood where it’s proposed.
If you’re looking to build an ADU, or accessory dwelling unit, in 2023, AB-2221 allows you to include a detached garage for your additional unit. Long Beach has an ordinance governing ADUs built in the city and has looked to speed up the approval process as the city tries to increase housing production.
Another new law will make it cheaper to tear out your lawn and replace it with native landscaping. Programs like the Long Beach Water Department’s Lawn-to-Garden initiative offer residents funds to help with those conversions, and under AB-2142 that money will no longer count as taxable income.
This article is posted with courtesy of Jason Ruiz of Long Beach Post
HOUSING MARKET PREDICTIONS FOR 2023
Long Beach Rent Forecast
Over the next couple of years, Long Beach could continue to see rent increases, according to a new report from USC’s Lusk Center for Real Estate.
In Long Beach, where 60% of residents are renters, vacancies have dipped to under 5%, a trend that is mirrored in Los Angeles County, as well as Orange County, San Diego County, and the Inland Empire.
“The biggest driver of rents next quarter is vacancy in the previous quarter, so when vacancy is low, rents go up,” said Richard Green, director of the Lusk Center and co-author of the annual report, which was released earlier this month.
At the beginning of the pandemic, apartment rental prices barely moved, until 2021 and into 2022, when rents began to sharply increase, Green said.
Many Long Beach ZIP codes saw increases of 5% throughout 2021, and ZIP codes in West Long Beach in particular have experienced the largest increases over the past few years.
High inflation is a significant factor in the projected increases, which the report forecasts will happen more quickly than was typically seen prior to the pandemic.
“We expect rents to go up—maybe not quite as much as inflation—but still to go up in the next couple of years, and we’re looking at 5 or 6% in Long Beach per year over the next couple of years,” he said.
The report, though, did contain some caveats. Green noted that it can be difficult to truly assess potential outcomes based on the past two years, which have been unlike any other years in history, he said.
Contributing factors noted in the report also include the significant levels of outmigration from Long Beach and Los Angeles County, mostly consisting of lower-wage earners who relocated to more affordable locations such as Arizona and Nevada, Green said.
While outmigration has led to rapid growth in per capita personal income in the Los Angeles area, which has retained and attracted higher-earning workers, it is unknown if this trend of outmigration could continue in the coming years, and what the impact could be on the current and future forecasts.
“Long Beach, in some ways, is a microcosm of the region in terms of the demographics, the income inequality—Long Beach has some very wealthy areas like Naples, and not very wealthy areas,” Green said. “If you go back 30 years, people would call it a pretty affordable community, and I don’t know if you could call it that anymore . . . Just like in other Southern California cities, (the trend of climbing rental prices) creates a real challenge from a quality-of-life perspective.”
Nationally, median rent rose over 19% from December 2020 to December 2021 in the 50 largest metro areas, according to a Realtor.com assessment of properties with two or fewer bedrooms.
In Long Beach, the median rental price is currently $2,195—an increase of $200 since last year, according to Zillow.
This article in posted with courtesy to LONG BEACH POST
Apartment Rents Increase Slowing Down
Price Declines Expected in 39% of U.S. metros in 2023, mostly in the Western region, according to Goldman Sachs
Bell Gardens, California Inacted Rent Control on Apartment Buildings
On Monday night, Bell Gardens became the latest city to take action. Its city council unanimously voted to advance a rent control plan that limits annual increases to no more than 4%.
Pomona’s city council also recently capped annual rent increases at 4%.
The Bell Gardens proposal still needs a final vote of approval. Once the plan is finalized, tenant advocates say Bell Gardens will become the first city in Southeast L.A. to enact rent control.
“[Bell Gardens] is essentially a tenant, low-income community, heavily Latino,” said Martha Pineda, an organizer with California Latinas for Reproductive Justice, one of the groups that advocated for rent control in the city.
According to the U.S. Census Bureau, 96% of Bell Gardens residents identify as Latino. More than one-quarter are experiencing poverty. To cover rent, “most folks will say that they've already talked about cutting down food costs, they've already talked about medicine costs,” Pineda said.
In the past, she said, “rent hikes have essentially displaced a community that's lived [in Bell Gardens] for decades.”