Rising Vacancy and Rent Losses in Late 2023 Keep Owners Cautious
By Ryan Patap
CoStar Analytics
March 8, 2024 | 2:29 P.M.
The percentage of Los Angeles properties offering concessions remained elevated in February, with 27% of properties with 25 or more units providing some level of incentives during the month — a slight rise from January's 26%. Levels at the start of this year are around their highest levels since June 2021.
Some of these elevated concessions stem from softening rents in late 2023. Although the L.A. region's rents have posted slight gains year to date, rents year-over-year largely held flat, only increasing by 0.2%.
Demand for apartment units during the past 12 months has been relatively soft, with tenant net absorption — the difference in units occupied and vacated — of 5,700 units. On average, the market has seen 8,100 units absorbed annually over the past decade.
At the same time, over 11,000 market-rate units have been completed during this 12-month period, similar to the level of completions in the preceding five years. Vacancy, 5.0%, is up from 4.5% at the end of last February.
Concessions recently offered range from as small as a waived application fee to as large as eight weeks of free rent on a newly signed, 16-month lease in metro locations that have seen a spike in unit completions, including downtown Los Angeles or Koreatown.
Los Angeles apartment market conditions appear close to turning a corner, with CoStar expecting vacancy to peak in the coming months before seeing tightening in the second half of this year.
While near-term economic growth is expected to be soft, CoStar’s latest forecast expects that the economy will avoid a recession. Additionally, recent consumer sentiment surveys indicate greater confidence in personal finances than several months ago, a confidence that could boost household formation. As a result, Los Angeles' landlords and property managers may become more optimistic in the coming months.