Multifamily Market Nationwide

In 2024, there will be a surplus of new apartments. Approximately 440,000 new units will be ready in 2024, with over 900,000 still being constructed. This will result in a slight increase in empty apartments and a slowdown in rent increases, making it a bit more affordable for renters.

These new apartments are helping to alleviate the shortage of single-family homes. The affordability has been a huge issue, especially since the rates were high last year, diminishing the purchasing power. More newly constructed muti-units will be entering the market, stabilizing the rental market. By 2024, the cost difference between owning a new home and renting will still be significant but not as high as in 2023.

Multifamily Market Los Angeles

In Greater Los Angeles, the number of empty apartments slightly increased to 4.7% in the third quarter of 2023. Even with this, the average rent went up a little to $2,818 per month. This happened because more people were renting apartments, especially the newer ones, despite more apartments being available. However, overall, people were less active in renting or buying.

Builders in Los Angeles have initiated fewer new apartment projects due to a market equilibrium. The supply of available apartments closely matches demand, while the increasing construction and financing costs for large-scale projects have caused a slowdown. This has led developers of a significant project to reconsider their plans, contemplating reducing the scale of multifamily and commercial spaces. Demand for multifamily properties is decreasing due to changing market conditions affecting renter interest.

What to take into consideration when buying multifamily in Los Angeles

When buying a property with multi-units or commercial buildings in Los Angeles, consider these things: the cost per square foot, the possibility of increasing the property's value and what you need to do to achieve that, how many apartments are empty (especially important if rent control is in place), the Gross Rent Multiplier (GRM), and the cost for each apartment unit. Focus more on the potential to increase the property's value.

What is the Average Cap Rate in Los Angeles?

Cap rates in the Los Angeles metropolitan area range from 3.2% to 5.2%. Los Angeles's average capitalization rate (cap rate) is 3.9%, lower than the national average of 4.9%.

LA real estate strategy: prioritize value-add and opportunity. Land value is high and appreciates significantly. Despite lower cap rates than other states, land appreciation is substantial.

Multifamily Valuation Underwriting for Class A Apartment Buildings in Los Angeles, as of the Third Quarter of 2023. According to CBRE investment experts:

What Is The Average Cap Rate In Beverly Hills? 

According to the costar data, Beverly Hills has an average cap rate ranging from 3.09% to 6.4%. However, the exact rate for a property may differ due to location, market trends, and local schools. Beverly Hills is a solid and resilient real estate market for income-producing multi-units with a low 6.3% vacancy rate. It experienced a 1.2% growth in average asking rents over the past year, with an average rent of $3,270 per month, showcasing its premium status per costar data.

Why invest in Multifamily in Beverly Hills

Beverly Hills is a famous and affluent city in the heart of Los Angeles. Known for its multimillion-dollar homes, it's surrounded by notable areas like Century City, Hollywood Hills, and Brentwood.

A key attraction for tourists is Rodeo Drive, famous for its high-end boutiques and luxury shopping experiences. This influx of tourists contributes to the city's bustling atmosphere and economic vitality. The presence of Cedars-Sinai Medical Center adds to its prominence.

Beverly Hills is home to several luxury brands such as Versace, Balenciaga, Christian Louboutin, Dolce & Gabbana, Burberry, Chloé, Salvatore Ferragamo, and Vera Wang. These brands enhance the city's reputation as a hub of style and luxury and attract a constant flow of shoppers and tourists, making it a world-renowned luxury center.

As a municipality, Beverly Hills is noted for its cleanliness and efficient management, which can be contrasted with the broader Los Angeles area. This efficiency, coupled with a high demand and low inventory of properties, often results in higher real estate prices in Beverly Hills. Its reputation for safety and stability enhances the city's appeal, making it a desirable location for those with significant financial resources. Beverly Hills is an A-plus location demanding strong rents and high appreciation.

Santa Monica Multifamily Market Overview

Over the last five years, Santa Monica's multifamily appreciation grew by 1.9% annually, a bit slower than  Los Angeles’s 2.8%, according to an NAR commercial report. Santa Monica's average cap rates are low, at 3.5%, one of the lowest in L.A. and the country.

Currently, 650 new housing units are being built in Santa Monica and will insatiate the rental demand upon competition, due in 2026. The Lincoln Blvd and Colorado Ave construction will add more housing, including some for low-income families. Last year, apartment sales in Santa Monica hit $628 million, way more than usual. The city's beachside spot, strong local economy, and great nearby features mean that the average price for a unit is $680,000. That's much higher than the L.A. metro average of $420,000.

Why Invest In Multifamily In Santa Monica

Residents of Santa Monica are privy to a lifestyle that's a blend of scenic beauty, urban energy, and community-oriented living. The area's charm is enhanced by its sun-kissed beaches, the lively 3rd Street Promenade downtown, and the sophisticated allure of Montana Avenue with its trendy restaurants and upscale shops. Notable landmarks include the world's largest V3 Tesla Supercharging Station. 

Saint John's Hospital and UCLA Health Center, a cornerstone of healthcare excellence, and organic farmers' markets bring a sense of health and community to the area. These markets offer fresh, locally sourced produce, fostering a healthy, community-focused lifestyle.

Santa Monica has unparalleled access to major freeways and metro stations. It's also a dynamic hub for high-tech startups and creative industries, home to global giants like Hulu, Oracle, and Amazon, which attracts a significant workforce and keeps the area in high demand. Cornerstone on Demand, Lions Gate Entertainment,  Snap Inc., Universal Music Group, Microsoft, Sony, HBO, and CBS are other notable companies.

But the best aspect of living in Santa Monica is the municipality itself. The local government is known for its effective management and progressive policies, contributing to a high quality of life. This includes initiatives in environmental sustainability, community development, and public services, making Santa Monica not just a place to live but a community to be a part of. This combination of natural beauty, urban convenience, health and wellness focus, and effective local governance makes Santa Monica a uniquely desirable place to live and invest in.

COMMERCIAL REAL ESTATE REPORT Quarter 3, 2023 Demographics and Economy Los Angeles-Long Beach-Anaheim, CA MetroArea By National Association of Realtors NAR

During the third quarter of 2023, the multifamily real estate sector in Los Angeles experienced a slower demand and absorption rate compared to the national average, resulting in more gradual rent increases. However, the area maintained a lower vacancy rate than other regions, indicating a stable market. Over 12 months, 3,438 multifamily units were absorbed in the market, with the asking rent per unit reaching $2,229, slightly higher than the previous year's $2,219. The effective rent per unit also increased from $2,206 to $2,212. 4,944 new units were introduced into the market, contributing to the overall inventory and offering a cap rate of 4.1%. The vacancy rate improved from 4.4% to 4.8%.

Overall Activity In The Commercial Real Estate Sector in 2023

The commercial real estate sector experienced several challenges in 2023, including rising vacancy rates and slower rent growth. However, there's optimism for improvement in 2024. Despite ongoing market challenges, the expectation is that reduced interest rates in 2024, possibly starting as early as the first quarter, will help alleviate these difficulties. Lower borrowing costs could then spur investments in the commercial real estate market. Consequently, the sector is expected to see an uptick in activity in the coming year.

What Is Ahead For Multifamily Market in 2024

The multifamily property market is expected to go through significant changes in 2024. This follows a year when a record number of new apartment buildings were under development. The increased supply of housing units is predicted to slow down rent increases and give renters a wider range of affordable housing options. This expansion in inventory could relieve renters struggling with rising rents and the high costs associated with transitioning to homeownership. Currently, over 50% of renters spend more than 30% of their income on rent, highlighting the widespread affordability challenge. Despite these challenges, demand for multifamily property is still expected to remain strong. Many potential buyers are likely to continue renting since mortgage rates, despite falling below 6.5% in 2024, may still pose a barrier to entering the housing market.

Bottom Line:

When considering an investment in the Beverly Hills, Los Angeles, and Santa Monica multifamily markets, it's essential to understand various critical factors. These include the local submarket’s vacancy rates, the trend in average asking rents, the status of the construction pipeline, and any recent legislative changes that could potentially influence your investment returns. A comprehensive understanding of these elements will enable you to strategically position your property in the competitive Los Angeles, Santa Monica, and Beverly Hills landscape, optimizing the potential of your investment or your sale. 

Feel free to contact us for personalized insights and detailed information on multifamily property evaluation, whether in Santa Monica, Beverly Hills, or Los Angeles. Our expertise can guide you in making informed decisions and enhancing the value of your real estate investments in these sought-after locations.