Strong Renter Demand in Top-Tier Properties Outpace New Supply Since June
By Ryan Patap
CoStar Analytics
March 22, 2024 | 1:16 P.M.
Segmenting Los Angeles' apartment market by asset quality demonstrates diverging recent renter activity. Higher-income renters seeking top-tier apartments have been a crucial driver of apartment demand.
Four-and-five-star properties, comprising only 15% of the market’s units, saw renter demand of 8,300 units in the past 12 months. Activity almost kept pace with the 8,600 units completed in this segment. The four-and-five-star vacancy rate sits at 8.6%, while currently the highest among quality segments, has come down from a recent peak of around 10% in the middle of last year.
Most other markets nationally, in comparison, witnessed four-and-five-star vacancies rise further in the second half of last year, mainly resulting from more robust construction pipelines. Net completions during the past 12 months represent around a 1% expansion of existing units in Greater L.A., below the 3.1% increase in apartments witnessed nationally.
In contrast to improving occupancies in higher-end communities, vacancies continued to rise in lower-end one-and-two-star and mid-end three-star buildings. One-and-two-star properties, with around 65% of the market’s units, witnessed negative demand of 2,900 units in the past 12 months. Three-star properties, with around 20% of the market’s units, saw modest, positive demand for 320 apartments.
Lower and middle-income residents face greater budget constraints, with rents still near record levels. These renter cohorts have driven more limited household formation and continued outmigration from Greater L.A. to more affordable metros.