I have noticed more use of wide handles on kitchen cabinets and less use of knobs. In Bravo’s new reality show, Start-ups: Silicon Valley, young attractive start up hopeful Kim Taylor shows off her kitchen in her Mission Bay apartment at the Avalon. The apartment is typical of most new apartments: espresso cabinets with long silver brushed handles, open to living space, granite or Cesar stone counters, stainless steel appliances, and an eating bar:
Apartments in Los Angeles are still recovering from the downturn in late 2008. Vacancies continue to decline and according to many surveys, now hover in the low 3% range. Many sub-markets are actually below 3%. According to PMI’s research, the last time apartment vacancies fell below 3% (in 1997 and 2006), strong rent increases followed. The U.S. economy grew strongly in both 1997 and 2006, and we don’t know if we can say the same thing about 2013. Rent growth may not be nearly as strong in 2013 as in those years.
However, Los Angeles vacancies are likely to fall below 3% if the economy does not take a turn for the worst. As I result, one could expect rents to increase 10% over the next 18 months. Indeed, several Los Angeles owners have experienced record low vacancies this year (1 to 2%). Unlike the office market, where owners will incur high vacancy rates to achieve very high rents, apartment owners will allow their occupancies to drift down to very low levels before testing rents. Apartment owners tend to be more cash flow sensitive, and apartment tenants tend to be very rent sensitive. After a year of very low vacancies, apartment owners will begin to explore and test rents or eliminate concessions.
Different reports show that job prospects for young adults have improved. This has encouraged them to start households after many years of living with roommates or their parents. This trend also coincides with a move back to urban centers where apartment living is common and convenient. Very little in the way of significant new apartment supply will be delivered during 2013. Although home sales and prices are likely continue to improve also in 2013–residential financing still remains very difficult. A move in the economy will either improve this forecast if positive or negate it if negative.
PMI has a creative office building on Rose near Main Street and the new Google offices. The property was always a performer for us because of its proximity to the popular Main Street in Santa Monica on its north, Abbot Kinney in Venice on its south, and Venice Beach on its west. If you went a few blocks East on Rose Avenue, the area become seedy with homeless, crime, and run down retail. In the last six years, this area has transformed and gentrified into a new hip location. The Los Angeles Times article describes this transformation.
This recent LA Times article provides more evidence that the economy is improving and in turn causing apartment rentals to improve. The article discusses new research showing that young adults who doubled up with their parents are getting jobs, leaving the nest, and renting apartments.
Other reasons cited for the apartment market’s strength include former foreclosed homeowners converting to rentals, potential new homeowners choosing to rent, and a movement back to the urban centers where renting is more convenient and economical.
However, the article shows that rental housing is strongly connected with the job prospects of young adults who have benefited more statistically from this recovery. It is a double edged sword. A reversal of the recovery could upend the rental market’s strength.
Check out the article on the LA Times website here.