A Message From Lee ISG'S President Robert Leveen
It’s a bright new year, and after a glorious celebration, have we awoken to a new multifamily market? Are we still tipsy from almost a decade of sustained rent growth and appreciation? Is the party over?
The fundamentals say No. Wages are up 3.2% from 2017, national unemployment remains below 4%; the uptick due to more people entering the job market. Not to mention, December saw an amazing gain of 312,000 new jobs, the largest monthly increase in over 3 years.
While the Fed raised rates four times in 2018, the stock market has been incredibly volatile, and the trade war continues with China. Additionally, California has a new governor who is poised to lean more left than his predecessor, and the national political landscape will continue to its division.
With these indicators, are there still multifamily opportunities in Los Angeles County, Orange County, and Inland Empire.
With ongoing uncertainty, investors head for safety, and multifamily is one of the safest investments of all product types and asset classes, especially in southern California.
Average Los Angeles asking rents grew by $153/month last year to $2,461 according to Yardi Rent Cafe. This increase is largely due to supply constraints that continue to plague the metro area. Even with all the new inventory that has come online in recent years, the current occupancy rate is 96.2% according to Costar, which is a good indicator that vacancies will remain low and rent growth is still likely for the foreseeable future.
The Los Angeles market needs 100,000 units to be delivered in the next five years to be at equilibrium. In 2018, 9,300 units were delivered, and there are only 14,000 units under construction.
Asking rents in the Los Angeles MSA increased by $153 per month in 2018 to $2,461 according to Yardi Rent Café. This is increase is clearly due to a supply constrained market. According to Co-Star, the current occupancy rate is 96.2%, even with new inventory being delivered. This is a strong indicator of future low vacancy and reasonable sustained rent growth for the next several years.
Since the benchmark 10 year treasury is off its highs from October, 2018 and has now settled back into the 2.70% – 2.75% range, multifamily debt has come down and five to seven year money has declined back in the 4.25% range, despite the Federal Reserve rate hikes.
Continued downward pressure on rates for borrowing will see cap rates compress once again, with the average in Los Angeles county at 4.2% for 2018.
At Lee & Associates Investment Services, we look forward to working with you on your investment strategy.