Marcus and Millichap in their 3rd quarter 2015 Los Angeles apartment market report forecast 8,600 unit completions this year. Of those completions, M & M forecasts 4,400 unit completions in the Downtown area. That means over half of all new apartment units will be built in Downtown Los Angeles. Downtown is now the fastest growing residential market in LA and this trend is going to continue. Why is this happening? Billions of dollars have been invested in Downtown infrastructure and amenities including museums, parks, transits, and entertainment venues. A higher income residential cluster has formed to transform Downtown. Also, downtown is one of the easiest and most zoning friendly areas in the City to build. Developers can build density without lawsuits and homeowner fights. At some point, maybe these new residents will push back.
In the short run, at some point, this expansion may lead to overbuilding. M & M forcasts an increase in vacancy over the next few years. But in 2015, M & M is only forecasting a 10 basis point increase in vacancy to 3.7%. In the long run, this expansion will continue to transform Downtown into a popular and upscale neighborhood. This trend will also help transform many adjacent Northeast neighborhoods.