June 2024 Market Update: Multifamily Properties in California

By Trevor McAmis | May 30, 2024

June 2024 Market Update: Multifamily Properties in California

Posted by Trevor McAmis on May 30, 2024 4:44:32 PM

Overview of Current Trends

In recent months, the Greater Los Angeles rental market has shown a noticeable shift. After experiencing significant downturns in late 2023, the average asking rents are on the rise again. This trend mirrors the broader national market, which also saw rents bottom out in December 2023 before beginning a steady ascent. Improved renter demand in 2024 has been a key factor, enabling landlords in Los Angeles to implement modest rent increases in what appears to be a stabilizing market.

Market Trends in Greater Los Angeles

Rent Trends

At the end of 2023, average daily asking rents in Los Angeles hit a low of $2.86 per square foot per month. However, since then, the market has gained momentum, with rents increasing by approximately 1% to just above $2.88 per square foot per month. This upward trend has been consistent, reflecting the overall positive movement seen nationwide. The sustained rent increases indicate a recovering market, with landlords cautiously optimistic about future growth.

Demand and Vacancy

The improved renter demand in 2024 has played a significant role in these rent increases. Year-to-date, renter demand has reached approximately 2,700 units, slightly surpassing the 2,500 units added since the beginning of the year. This balance between supply and demand has kept the apartment vacancy rate in the L.A. metro area stable at around 5%, a range it has maintained since September 2023. A stable vacancy rate is crucial for maintaining rental income and ensuring property owners can manage their investments effectively.

Regional Rent Changes

The rent trends in Greater Los Angeles vary significantly across different neighborhoods. Year-to-date, rent changes have ranged from a slight decline of 0.8% in Tarzana to a notable increase of 4.9% in the Santa Clarita Valley. Even areas with high levels of new supply, such as downtown Los Angeles and Koreatown, have seen positive rent growth. Specifically, downtown Los Angeles has experienced a 1.5% increase in rents since the beginning of the year, while Koreatown has seen a 0.7% rise. These regional differences highlight the diverse nature of the rental market in Greater Los Angeles, influenced by factors such as local demand, new construction, and economic conditions.

Broader Market Analysis

Comparison with National Trends

The rental market trends in Greater Los Angeles are not occurring in isolation. Similar patterns are evident nationwide, where rents also reached their lowest points in December 2023 and have been rising since then. This national trend suggests a broader recovery in the rental market, driven by factors such as increased renter demand and economic stabilization. Understanding these trends helps contextualize the changes seen in Los Angeles and offers insights into the broader market dynamics.

Key Market Insights

Beyond Los Angeles, other regions in California, such as Orange County and San Francisco, provide additional insights into the current state of the rental market. In Orange County, for instance, rents have remained nearly flat in recent months, increasing by just 0.1% in April 2024. This stagnation reflects subdued demand, with landlords focusing more on maintaining occupancy than pushing for rent increases. Conversely, San Francisco has seen one of its lowest sales volumes since the Great Recession, highlighting the challenges faced by commercial real estate investors in the current economic climate. These regional differences underscore the importance of localized market analysis when considering property investments and tax appeals.

Specific Regional Insights

Orange County

In Orange County, the rental market has exhibited unique characteristics compared to Greater Los Angeles. In April 2024, rents were nearly flat, with a modest increase of just 0.1%. Since the beginning of the year, rents have fallen by 1.3% and remain 1.7% below their November 2023 peak. This subdued demand has led apartment owners to prioritize maintaining occupancy over raising rents.

Despite the recent downturn, Orange County still boasts the strongest trailing-year rent growth rate in the Western United States at 2%, although this is a significant drop from the 4% increase seen in 2023. The region's apartment market faces challenges from an increasing supply pipeline, with over 3,000 units slated for completion this year and nearly 4,000 units expected in 2025. If renter demand does not increase, these new additions could lead to further declines in rental rates due to rising market vacancies.

San Francisco

San Francisco's real estate market has been marked by a notable decline in investor activity. In the first quarter of 2024, total sales volume for the four main sectors amounted to $425 million, the second lowest since the Great Recession. High financing costs and weak operating conditions have deterred investors from committing funds for acquisitions.

The office sector, traditionally the leader in investment volume, saw very low sales activity, totaling around $90 million for the quarter. Similarly, the multifamily segment recorded one of its lowest quarterly volumes at about $70 million. Both sectors experienced significant distressed sales, which are not included in the total sales data. The industrial segment, however, saw users becoming the most active buyer category, accounting for over 50% of deal volume in the past six months.

The retail investment activity remained subdued but steady, with all-cash private investors and owner-users making selective purchases. The city's ongoing challenges, such as high vacancy rates in Union Square, continue to impact investor confidence. Market participants hope that signs of a turnaround, including a return to population growth and increased business activity, will boost investor confidence in the coming months.

Market Dynamics in San Diego

Rent Growth Trends

San Diego's rental market has experienced mixed results in terms of rent growth. In April 2024, rents increased by only 0.2%, or an annualized rate of 2.4%, the lowest monthly rent growth so far this year. This modest performance follows a recent trend of waning demand and slower household formation. Average market-rate rents in San Diego are approaching $2,450 per month, making it one of the top 10 most expensive rental markets in the country.

Mid-tier buildings led rent growth in April, with a 0.3% increase, followed by the luxury sector and naturally occurring affordable housing segment, both at 0.1%. The University Town Center area posted the strongest rent growth at 2.8% in April, reversing last year's declines. Coastal neighborhoods in the North Shore Cities area also saw positive momentum, with a 0.6% increase in April.

Construction and Development

San Diego's market-rate apartment pipeline remains robust, with 8,000 units under construction at the end of the first quarter, aligning with the three-year average for construction levels. Despite higher construction costs, elevated interest rates, and weak demand, local developers are optimistic about future demand improvements.

Key areas of construction include downtown San Diego, Mission Valley, North County, the South Interstate 15 corridor, and Balboa Park neighborhoods, which account for 7,000 of the units being built. Mission Valley, in particular, has over 2,000 units under construction, spurred by community plan updates and an extensive trolley system.

North County also has nearly 1,000 units under construction, with Oceanside seeing significant development due to its new density bonus law. However, the region faces challenges from local opposition to new projects and the need to balance supply and demand. Over 3,000 market-rate apartments are scheduled to open this year, which could outpace demand if current trends continue.

Implications for Property Tax Appeals

Understanding Market Fluctuations

The recent fluctuations in rental markets across various regions in California have significant implications for property tax assessments. Rising rents and stable demand in areas like Greater Los Angeles indicate a potential increase in property values, which could lead to higher property tax assessments. Conversely, regions experiencing flat or declining rents, such as Orange County, may see lower property values, which could justify appeals for reduced assessments.

Property owners must stay informed about these market trends to effectively manage their tax liabilities. Understanding the local dynamics of rent growth, demand, and supply can provide critical insights into the accuracy of property valuations used for tax purposes.

Regional Differences and Their Impact on Assessments

The diverse rent trends across regions like Los Angeles, Orange County, San Francisco, and San Diego highlight the importance of localized analysis in property tax appeals. For instance, the modest rent increases in Los Angeles suggest a stabilizing market, which may lead to more accurate property assessments. However, in areas with significant new supply and slower rent growth, such as Orange County, property owners might have a strong case for appealing inflated assessments.

In San Francisco, where investor activity has slowed and distressed sales are prevalent, property values may be undervalued, providing opportunities for property owners to seek reassessments. Similarly, the mixed rent growth trends in San Diego, coupled with substantial new construction, suggest that some properties may be overassessed based on outdated market conditions.


Summary of Key Points

The rental markets in various regions of California have shown diverse trends, reflecting a mix of growth, stability, and decline. These trends have significant implications for property tax assessments, necessitating a nuanced understanding of local market dynamics.

Actionable Insights

Property owners should stay updated with market trends, regularly review their property assessments, and consider appealing when discrepancies arise. By tailoring appeals to specific regional insights and collaborating with property tax professionals, property owners can better manage their tax liabilities.

Engagement with Paramount Property Tax Appeal

If you believe your property has been overassessed, contact Paramount Property Tax Appeal for a consultation. Our team of experts will help you navigate the complexities of property tax appeals, ensuring that your property is assessed fairly and accurately. Reach out today to discuss your case and explore how we can assist you in achieving a favorable property tax status.


Topics: Multifamily

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