Investors spent more than $18B on SoCal apartments this past year

BY JOSEPH PIMENTEL LOS ANGELES

Pictured here is construction of an apartment building in the Koreatown neighborhood of Los Angeles. (Spectrum News/Joseph Pimentel)

LOS ANGELES — Investors are capitalizing on the high demand for housing in Southern California.

In the past four quarters, investors spent more than $18.6 billion buying apartments, duplexes and other multifamily properties in the Greater Los Angeles region, CBRE reported.

According to the new CBRE report released Thursday, Greater LA ranked fourth for multifamily investments over the past four quarters among the 69 metros the commercial real estate company tracks. 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, investments in the multifamily sector reached $63 billion in the first quarter of 2022, a 56% increase year-over-year. CBRE officials said it's the strongest first quarter on record and brings the four-quarter multifamily investment total to $374 billion. 

In the first quarter alone, multifamily investments accounted for 37% of total commercial real estate investment volume, followed by office at 21% and industrial at 20%.

The level of multifamily investment activity in LA was a 122% increase from the previous year, CBRE officials said.

"Los Angeles recorded record volume last year," said Dean Zander, executive vice president of CBRE's multifamily division. "We surpassed pre-pandemic levels in terms of dollar volume and nearly matched it in terms of the number of transactions (2019 was slightly ahead). Since cap rates have continued to compress since 2020, pricing has surpassed the previous highs, and demand is far outpacing supply."

CBRE officials said household formations, job and wage growth, rent growth and rising home prices fueled demand for multifamily properties nationwide.

"Renters are feeling emboldened by covid restrictions lifting," said Zander. "They are more comfortable spending more money on better apartments as they return to work. Confidence has been restored in the job growth markets throughout Southern CA."

The new report comes as the coronavirus pandemic wanes and people return to a "new normal" way of life, including returning to the office. 
The pandemic accelerated the demand for single-family and multifamily 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 because of the high prices or stiff competition, they've had to continue to rent. 

Investors noticed. 

Apartment rents went up by as much as 18% year-over-year across Southern California. Rent has gone up 14% year-over-year in LA. Orange County rent jumped nearly 18% year-over-year, and rent in the Inland Empire jumped 17%. 

And as the Federal Reserve increases interest rates to curb inflation and housing prices remain high, relief remains far off for tenants and prospective homebuyers.

"With continued strong rent growth throughout every Southern California market, ranging from 14% to 18% year-over-year, investors are drawn to multifamily opportunities, despite interest rate pressure," said Zander. 

As companies call their workers back to the office, Zander said investors are targeting areas many workers fled at the onset of the pandemic, including downtown LA, Hollywood and other job-centric locations. 

"The Orange County, Inland Empire and San Diego markets command the most attention due to job growth in the life sciences industries, warehousing, distribution and logistics centers, and outpaced rent growth," he said.

While investors are capitalizing on the high demand and rent growth, it doesn't bode well for tenants. 

As multifamily investors seek the highest return for their investments, expect rent to continue increasing. 

​"We can expect to see continued upward pressure on rents as single-family homes remain unaffordable in nearly every metro," said Zander.