LOS ANGELES — Investors are capitalizing on strong housing demand in Southern California.
Over the past four quarters, investors have spent more than $18.6 billion buying apartments, duplexes and other multifamily properties in the Greater Los Angeles area, Coldwell Banker Richard Ellis reported.
According to the new CBRE report released Thursday, Greater LA ranked fourth in multifamily investment over the past four quarters among the 69 metros tracked by the commercial real estate firm. CBRE defines Greater LA as the five counties of Ventura, LA, Orange, Riverside, and San Bernardino.
Investors invested more in Dallas/Fort Worth ($29.1 billion), Atlanta ($21.3 billion) and New York ($17.6 billion).
Nationally, investment in the multifamily sector reached $63 billion in the first quarter of 2022, a 56% year-over-year increase. CBRE officials said it was the strongest first quarter on record and total multifamily investment over four quarters was $374 billion.
In the first quarter alone, multi-family investments accounted for 37% of total commercial real estate investment volume, followed by offices at 21% and industrial at 20%.
The level of multifamily investment activity in Los Angeles increased 122% from a year earlier, CBRE officials said.
“Los Angeles saw record volume last year,” said Dean Zander, executive vice president of CBRE’s multifamily division. “We surpassed pre-pandemic levels in dollar volume and nearly matched them in number of transactions (2019 was slightly ahead). Given that cap rates have continued to compress since 2020 , prices have surpassed previous highs and demand is far exceeding supply.”
CBRE officials said household formations, job and wage growth, rising rents and rising house prices have fueled demand for multifamily properties nationwide.
“Tenants feel emboldened by the lifting of covid restrictions,” Zander said. “They are more comfortable spending more money on better apartments when they return to work. Confidence has been restored in the Southern California job growth markets.”
The new report comes as the coronavirus pandemic subsides and people return to a “new normal” lifestyle, including returning to the office.
The pandemic has accelerated the demand for single-family and multi-family housing due to low interest rates, work-from-home policies and limited housing supply.
With so many people shut out of the single-family housing market due to high prices or fierce competition, they have had to keep renting.
Investors have taken notice.
Apartment rents are up 18% year over year in Southern California. Rent is up 14% year over year in Los Angeles. Orange County‘s rent jumped nearly 18% year-over-year and the Inland Empire’s rent jumped 17%.
And as the Federal Reserve raises interest rates to curb inflation and house prices remain high, relief remains a long way off for potential renters and buyers.
“With continued strong rent growth in all Southern California markets, ranging from 14% to 18% year-over-year, investors are drawn to multifamily opportunities, despite pressure from rental rates. interest,” Zander said.
As companies call their employees back to the office, Zander said investors are targeting areas that many workers fled at the start of the pandemic, including downtown Los Angeles, Hollywood and other workplace-centric locations. job.
“The Orange County, Inland Empire and San Diego markets are attracting the most attention due to employment growth in the life sciences, warehousing, distribution and logistics centers, and superior rental growth,” he said.
As investors capitalize on strong demand and rising rents, this does not bode well for tenants.
As multi-family investors seek the highest return for their investments, expect rents to continue to rise.
“We can expect to see continued upward pressure on rents as single-family homes remain unaffordable in nearly all metropolitan areas,” Zander said.