Strong Renter Demand in Four- and Five-Star Properties Outpaces New Supply
By Ryan Patap
CoStar Analytics
December 11, 2023 | 1:00 P.M.
Average vacancy in four- and five-star apartment properties, those at the top-end of the Greater Los Angeles apartment market, declined in recent months from a June peak of 9.8% to 8.8% at the end of the third quarter.
Part of that decline in vacancy stems from strong renter demand in four- and five-star properties, with around 5,000 units absorbed, or the net change in occupancy, in the third and fourth quarters as of mid-December. This is well above the demand of 3,100 and 3,400 units absorbed in the first half of 2023 and the second half of 2022, respectively. So far, demand in the second half of 2023 has outpaced the 3,800 net new four- and five-star units completed during this time.
The increase in occupancy among higher-end apartments contrasts with the broader Los Angeles apartment market. Since the end of June, apartment vacancy in Los Angeles has held steady on a market-wide basis, hovering around 4.9% after rising earlier in the year.
While vacancy in four- and five-star properties is still up from a recent low of 7.3% during the second half of 2022, the increase in occupancy is promising for recently completed and soon-to-be-completed apartment properties in the region.
Although existing four- and five-star units represent only about 15% of market-rate multifamily units in greater Los Angeles, developers overwhelmingly focus their activity on this market segment. Of the approximately 11,300 market-rate units completed year to date — around 9,700 units, or just over 85% of the total deliveries — were rated as four- and five-star properties. Around 85% of units completed during the past decade were also in this ratings category.