Across many of the nation’s largest cities, multifamily properties continue to be a favored asset among developers, with approximately 1.6 million rentals built in the past five years. A recent study by RentCafe showed that a majority of these properties are popping up in California, but downtown Los Angeles leads the way as the most prominent location for multifamily developers due to its overall growth and attractiveness to younger generations.
“In the 12 months ending in July, metro Los Angeles gained 242,900 net jobs, for a 0.2 percent expansion. July marked the first month of year-over-year gains since last March,” said Doug Ressler, who leads research efforts for Yardi Matrix, a sister site of RentCafe. “Consistent with nationwide trends, leisure and hospitality led growth, the sector added 107,600 jobs for a 30.9 percent surge, the largest rate of all industries. Trade, transportation, and utilities added 42,300 jobs, followed by education and health services, up 34,700 jobs.”
According to the study, which analyzed apartment growth in the top 50 neighborhoods in the U.S., Los Angeles recorded 10,136 new apartments built from 2017 to 2021, which accounted for 39 percent of the city’s total apartment units. According to the report, Downtown Los Angeles continues to be a favored location among renters due to the abundant entertainment industry and the culturally diverse environment.
However, Downtown Los Angeles was not the only California neighborhood to top the list. Also in Los Angeles, Hollywood saw significant growth, with RentCafe ranking it tenth on the list. The popular Los Angeles neighborhood recorded 3,431 new apartment units added over the past five years, or approximately 13 percent of the neighborhood’s total residential units. Both Downtown San Jose and San Diego’s East Village neighborhood also saw a large amount of residential growth in the past five years. Downtown San Jose ranked just above Hollywood, with 3,511 apartment units added in five years, or approximately 58 percent of the neighborhood’s total units. In San Diego’s East Village neighborhood, approximately 2,699 units were added, or approximately 22 percent of the area’s total.
According to the report, cities in California continue to outperform many of the nation’s other popular neighborhoods due to the overall job growth as well as the attractiveness of these locations to renters, primarily millennials and those in Generation-Z.
“In August, monthly job growth in California was three times the national average of 0.2 percent, at 0.6 percent, according to the California Employment Development Department. Payroll jobs climbed by 104,300 in August, to 16.6 million, accounting for 44 percent of overall employment growth in the U.S. In August, the state had recovered 62 percent of the 2.7 million jobs it lost in March and April 2020,” Ressler said.
Approximately 11,761 rental units are expected to come online across the Los Angeles metro this year, surpassing the 11,203-unit decade record in 2016. As of September, the metro had an additional 160,000 apartment units in the planning and permitting stages. Developers also completed 7,388 apartments year-to-date through September. Additionally, 82 percent of these newly completed units were in upscale communities, attracting high-income renters.
“If you look at real estate in general, the real performers are multifamily, industrial and tech centers. The rest of the asset classes, in terms of the risk profile, have become unattractive to a lot of core investors. I think you are seeing capital flood into multifamily as one of those safe bets. The residential environment demonstrates the value of developing specialized local knowledge to be able to deliver the best outcomes for our consumers and providers,” Ressler said.
Growth across California’s multifamily markets is not expected to slow down anytime soon. According to Ressler, growth in many of these neighborhoods will continue but will likely spread to city metros as space constraints create challenges for builders. Already, the Los Angeles metro had 28,479 units under construction as of September, with approximately 83 percent of them aimed at high-income renters. Looking ahead, RentCafe anticipates metropolitan areas, such as the Inland Empire and Orange County, to see an increase in rental units.
“Population growth in the metropolitan Los Angeles area will be contingent and govern the pace of continued growth of economic diversity,” Ressler said.
He continued, “There is a growing need for high-quality rental homes has never been more evident. New communities are being developed to provide beautiful, comfortable, and amenity-rich places for residents to live, while contributing to the local housing supply and adding to the diversity of high-quality housing options.”