USC’s annual Casden Multifamily Forecast predicts apartment rents will rise from $241-$410 a month over the next two years.
By Jeff Collins
A blistering year of rent increases will ease slightly in the next two years, but Southern California tenants still need to brace for monthly increases of hundreds of dollars through 2023, according to a new forecast.
With apartment vacancies at their lowest levels in two decades, rents are expected to continue rising steadily over the next two years, with the biggest gains in areas like South Orange County and the Inland Empire, the Casden Multifamily Forecast said.
Even in downtown Los Angeles and nearby neighborhoods — the coolest rental markets in the region — rents still are expected to keep rising by the summer of 2023.
“Some patterns are quite pronounced,” the Casden forecast said. “It remains the case that the farther one gets away from Los Angeles, the greater the potential for rent growth.”
Orange County rents will rise $410 a month over the next two years, from an average $2,439 monthly last summer to $2,849 in the summer of 2023 — a two-year gain of 16.8%, according to the forecast, which is produced by USC’s Lusk Center for Real Estate.
Inland Empire rents are projected to rise $241 a month over the next two years, climbing from an average $1,827 last summer to $2,068 a month by the summer of 2023 – a two-year gain of 13.2%.
L.A. County’s rent, according to the forecast, will rise $252 a month two years from now, climbing from an average $2,073 last summer to $2,325 in the summer of 2023, for a two-year gain of 12.2%.
The data measures rents landlords charge new tenants for vacant units. Rent hikes likely will be smaller for existing tenants renewing their leases.
The forecast also indicates the pace of rent gains will ease slightly from this year’s torrid pace.
During the year ending this summer, average rents for newly vacant apartments increased by the greatest amount since at least 2001, figures from CoStar Group show. Average apartment rents had an annual rent gain of $373 a month in Orange County, $238 a month in the Inland Empire and $110 a month in L.A. County.
The average annual gain before the pandemic ranged from $36 to $44 per month.
Casden’s forecast shows even bigger gains over the next six months. By the end of March 2022, the forecast shows, rents are expected to have risen $471 a month in Orange County, $230 a month in the Inland Empire and $186 a month in L.A. County. Rents then are projected to rise more gradually over the 1 ½ years following that, but gains still will be well above average by the summer of 2023.
Dramatically falling vacancies are key reasons why tenants still face a pattern of rising rents over the next two years, the report said.
Vacancy rates fell to 2.1% in Orange County and 1.9% in the Inland Empire last summer.
The San Gabriel Valley, Simi Valley, the Palm Springs-Indio area and the Chino-Rancho Cucamonga areas all had vacancy rates below 2%, the report said.
“Such low levels are nearly unprecedented,” the report said.
The report added that “vacancy rates have been falling again, even in more central locations, but they remain higher than in the outskirts.”
Currently, only downtown Los Angeles, Koreatown and Beverly Hills have vacancy rates above 5%, the report said.
In Rancho Cucamonga, by contrast, just 1.7% of apartments were empty last summer, an indicator that bigger rent hikes can be expected over the next two years.
“The year of COVID changed the behavior of millions, and whether that behavior returns to a pre-COVID normal or is permanently changed will matter a lot for the rental market,” the Casden forecast said. “A large-scale move away from central cities to suburbs (led) to the sharp rise in vacancy in downtown L.A., Koreatown, Beverly Hills, Burbank-Glendale and coastal areas of LA County.”
The question now, said Green, is whether this historic move from the cities to “the outskirts” will remain permanent or return to pre-pandemic levels.
The original article can be found here.