Los Angeles real estate trends show vacancies rising slightly to 4.4% by the end of the year, according to Moody’s CRE. That’s below the national average of 5.6%, and particularly impressive given significant new construction in the metro area. Asking rents are expected to rise 0.9%—stronger growth than last year, according to Moody’s CRE.  

Robust workforce housing demand in LA

More than 28,000 units are expected to be completed in Los Angeles in 2024 and 2025, a more than 3% increase in inventory, according to Moody’s CRE. Luxury properties account for most of the new construction in the market, which means Class A multifamily real estate will likely be most affected by new supply, Krasinski said.

“Workforce and affordable housing properties tend to be well-insulated from the impact of new construction,” he said. 

In the first quarter of 2024, the vacancy rate for Class B and C properties in Los Angeles was 3.2%, compared with 5.7% for Class A properties, according to Moody’s CRE. 

Even for Class A properties, the challenging homebuying environment should help sustain apartment demand, said Lu Chen, Director and Senior Economist at Moody’s CRE. 

“Supply-side pressure will likely result in a minor vacancy uptick before gradually easing off after next year,” she said. 

Interest rates are staying higher for longer

Interest rates remain elevated as the Federal Reserve seeks more signs of progress on bringing inflation back to its 2% target.

Cap rates have risen slightly in response to the interest rate environment, and some Los Angeles multifamily owners are conserving liquidity to be ready if investment opportunities present themselves, said Lynnette Antosh, Senior Regional Sales Manager at Chase. 

Investors seeking or refinancing apartment loans should consider prepayment options that provide flexibility when interest rate relief arrives.

Rising insurance costs

Property management expenses have been on the rise, and insurance costs have seen especially large jumps. 

Multifamily investors can’t avoid premium increases altogether and don’t control whether a property is in a fire or flood zone. But staying on top of capital projects that keep a property in good shape can help, Krasinski said.

“Insurers will look at how recently you’ve replaced the roof, whether a building has copper or galvanized pipes, or whether the electrical system has been upgraded,” he said. “It’s about controlling the factors you can.” 

ADU opportunities in LA

Adding an accessory dwelling unit (ADU) can be a promising strategy for generating more cash flow from an existing property. 

ADUs—also known as granny flats, in-law suites and garage apartments—often consist of a new detached unit built on a property, or a converted garage. Turning extra space into a livable home requires an upfront investment, and there are regulations to navigate. 

But there’s considerable demand from renters, especially in a market like Los Angeles where the need for housing is outpacing development, Antosh said.