Slow but steady growth of the Southern California economy and a significant number of rental apartments lost to condominium conversion mean that apartment rents will rise this year in the Los Angeles area, according to the Casden Real Estate Economics Forecast, released today by the University of Southern California Lusk Center for Real Estate.
Low vacancy rates characterize the region. Overall, almost 97 percent of the apartments in Los Angeles, Orange, Riverside and San Bernardino counties are currently rented, and the report forecasts those occupancy rates should remain steady this year.
Rent increases of 6 to 7 percent can be expected in Los Angeles County this year, where the average monthly rent at the end of last year was $1,416. Orange County renters can also expect a rent hike in the 6 to 7 percent range, beyond the monthly average rent of $1,390. Inland Empire rents, which averaged $1,012 per month at the end of 2005, should rise more moderately, at about 5 percent this year.
The sharp increases in rent for Los Angeles and Orange counties "jump out at me," said Delores Conway, director of the Casden Forecast. She noted that, as late as 2004, rents in Los Angeles County only rose by 3.5 percent. She attributed that to supply and demand.
"It's a matter of tight supply," she said, noting that the rental apartment stock has been thinned by the large number of condominium conversions seen in recent years in both counties.
"Also, several projects in downtown Los Angeles and Irvine that were coming online as rental apartments were changed to condominiums," she said. Rising interest rates, though, may start to cool the conversion trend, she noted.
Apartment demand in Los Angeles County will be fueled by the addition of 45,000 to 60,000 additional new jobs this year. The county leads the nation in multi-family development, with 10,900 new apartments. Development was brisk in downtown Los Angeles, accounting for one-third of apartments completed. Despite this, though, occupancy downtown is 98.2 percent, the highest in the county.
Apartment construction is relatively muted in Orange County, with six new communities totaling 1,400 apartments scheduled to open this year. Irvine remains the dominant submarket, with the greatest number of apartments completed. The report noted significant apartment demand in Anaheim and Newport Beach.
The report predicts moderate rent increases in the Inland Empire because of a good amount of supply entering the market, numbering about 6,000 units. The Foothill area, close to Los Angeles and Orange County, is the Inland Empire's most expensive rental market.