Supply is failing to keep up with influx of new residents. Renters will pay more in the months ahead, forecaster says. Article by Jesus Sanchez When Jonathan Bines and Alexandra Jacobs moved to California from New York late last year, the couple figured they were certain to get a much better deal on an apartment. But a monthlong search convinced them otherwise. They settled on a two-bedroom apartment in Silver Lake, just north of downtown Los Angeles. The rent: $1,600 a month, a tad less than what they were paying for a slightly smaller unit in Brooklyn. "I was surprised at how high things were," said Bines, a 34-year-old writer. "We had to make more compromises than expected." Although the weak economy and home-buying boom have slowed demand for apartments nationwide, prompting landlords to cut rents last year, the average rent across Southern California has continued to climb, according to a major survey of larger complexes. And an industry forecast to be released today suggests that apartment rents are likely to keep rising at a good clip over the next two years. The difference in Southern California is that there's been relatively scant new construction of apartments given the needs of the region's growing population and influx of immigrants. As such, even in a sluggish economy, many landlords don't seem to be having much trouble finding takers, especially for lower-priced units. "My business is busier than ever," said Mark Verge, owner of Westside Rental Connection, one of the area's largest apartment listing agencies. "You have people moving here from New York, San Francisco, all over the place. It's real solid." There are signs that apartment hunters are being offered more move-in specials, such as free rent for a month or more. And apartment managers say that activity has slowed in the high-end apartment market. Still, it's hardly a renter's market. Although there are no precise rental figures for all apartments, the average rent for larger complexes in Southern California was $1,130 last year, up 2% from the previous year but 30% more than it was in 1998, according to a survey by RealFacts, an industry research firm that tracks data for apartments with 100 or more units. In December, monthly rents ranged from $774 in San Bernardino to $998 in Anaheim to $2,436 in Santa Monica, according to the RealFacts study. Depending on location, the average monthly rent across the Greater Los Angeles region -- including the Inland Empire and Orange County -- is expected to increase 8% to 15% between now and the end of September 2004, according to a forecast that will be released today by the USC Lusk Center for Real Estate. The largest increases are expected in the Inland Empire -- one of the fastest growing region's in the nation -- while high-priced Orange County will come in at the low end, according to the forecast. Unless there is a major disruption to the economy or a prolonged war with Iraq, renters should prepare to pay more for housing in the months ahead, said forecast director Raphael Bostic. "This is not a time to wait" for deals, Bostic said. "As the economy picks up, there will be more jobs and more people looking for places to live, and that puts more pressure on the market." Bostic expects the biggest spikes to occur in lower-priced apartments with two and three bedrooms that appeal to immigrant families. Many landlords agree, saying that while demand for luxury units has slowed, most apartments aren't on the market for long. Mageb Guirguis, who owns about 20 apartment buildings on the Westside of Los Angeles, said that most of his units that are priced at more than $2,500 can sit empty for months. His lower-priced apartments, however, tend to be leased out in only a few weeks. Rent trends in Southern California are running counter to what's happening in many other cities. During 2002, the monthly rent at large complexes in Los Angeles rose by 5.4% to $1,274, according to RealFacts. But average rents at similar properties in the San Francisco area fell 12% to about $1,663. In Seattle, rents remained virtually flat at $865. RealFacts Chief Executive Caroline S. Latham said Southern California's landlords have benefited from the region's diverse economy, which has suffered less than Northern California and other areas hit hard by the technology bust. In addition, although apartment construction has picked up across the Southland, it is still too little to satisfy demand and remains difficult to build. "In Phoenix or Las Vegas, as demand increases you just keep building more apartments," Latham said. " There's more of a constraint on the supply in Southern California, especially in the most desirable areas." The limits on new supply and the prospect of rising rents has continued to attract investment into the region's apartment market. Apartment broker Mary Ann King of Moran & Co. said it's not uncommon for a dozen serious bidders to submit offers on properties priced at $100 million and above. "The money is coming here," said King, president of Moran's West Coast office. "People pay more to own apartments in this part of the country."
February 6, 2003