Apartment rents in downtown Los Angeles are declining for the first time since the recession. Rents are down about 0.7% year over year to a current level of $2,665 per unit. By comparison, the last time rents declined in downtown Los Angeles was mid-2011, when the region was digging its way out of a recession and units were renting for an average of $2,290.
The downtown area is in the midst of a years-long construction boom. The number of apartments downtown more than doubled since the last time rents fell, from about 14,250 market-rate units at mid-year 2011 to nearly 33,000 today. Very few areas in the country expanded their multifamily inventory as rapidly as downtown Los Angeles did this past decade.
The latest wave of deliveries was massive, causing vacancies to spike and pushing rent growth into negative territory, at least temporarily. Nearly 4,300 units opened their doors downtown between mid-year 2018 and mid-year 2019. The arrival of so much new inventory in such a short window had a predictable effect on the vacancy rate, as it spiked from 6.5% in the second quarter of 2018 to more than 14% in the first quarter of this year.
Demand for these new units is strong, and downtown Los Angeles’ vacancies have already compressed to about 12%. But this has not been sufficient to prevent a supply-driven decline in rents. Across all of Los Angeles County, rents are growing at about 2% annually. While downtown is the only neighborhood where rents are falling, other heavily built areas are also posting their weakest rent growth of the cycle. Santa Monica, with 0.4% year-over-year growth, Mid-Wilshire, with 0.8%, and Woodland Hills, with 0.9%, all have more than 700 units under construction.
The long-term prospects for downtown are still healthy. Around 80,000 residents live downtown, but the Southern California Association of Governments anticipates that the population will swell to more than 200,000 by 2040. A recently released draft of the DTLA 2040 community plan is designed to accommodate up to 176,000 additional residents and more than 80,000 new jobs. If those projections are accurate, any near-term softness in the apartment market should be temporary instead of structural.