Article | Intelligent Investment

Investors Are Snapping Up Multifamily in Southern California

August 14, 2021 5 Minute Read

By Dean Zander

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There’s an old saying that goes something like “good things come to those who wait.” Patience is definitely a virtue—a fact we all have come to know too well considering the trajectory of the past 18 months. As we all sat at home cooped up for the better part of last year, it felt like the world had hit the pause button while the pandemic and its effects were infiltrating all aspects of our lives. For a time, the same was true for the commercial real estate market here in Southern California and Greater Los Angeles. Now, 18 months since the first lockdowns, it is safe to say that the region’s apartment sector has been roaring back.

Investors entered the global pandemic with substantial war chests, and as certain sectors like retail, hospitality, and office faced heightened challenges, the allure of multifamily investments brightened. Multifamily properties have long been a strong draw for investors in the region. In 2019, investment volume for apartments across the entire SoCal region topped $15 billion, which was more than any other asset class. And even during the height of the worldwide pandemic, apartments attracted an impressive $8 billion in investment volume in 2020, even though they fell behind industrial properties in total volume for the year.

Today, with the world trying to slowly get back on its feet, the scenario playing out in Greater LA is strikingly similar to what it was pre-pandemic. Multifamily properties have amassed $6.8 billion in investment volume through July of this year—outpacing industrial once again. Why the sudden uptick in activity? Part of it is the inherent resilience of multifamily assets in Southern California. Apartments have always been a safe and reliable bet in the region, and the same holds true now. Investors are chasing safety and yield—especially as economic forecasts predict strong rent growth for apartments in the months and years ahead.
This may be a surprise to some readers. Throughout the last year, headlines have focused on an urban core exodus to the safety of the suburbs. The data does show that some renters did in fact leave, but the migration wasn’t quite as severe as many predicted. Vacancy climbed by 3 percentage points in parts of LA’s urban core during the early parts of the pandemic, but vacancy levels have since recovered. Certainly, the suburbs will continue to be an attractive market for those working remotely or seeking to start families but the urban core is proving to be a sustained magnet for young professionals looking for an urban lifestyle and the amenities that come with it.

How is remote work going to affect multifamily going forward? There will likely be changes—but they might be relatively muted. More people are likely to spend more time working in the comfort of their own homes, depending on a company’s exact remote work approach. And apartment developers are responding to this anticipated shift. Already, we are seeing interest from developers in amenities such as open green areas, office-like spaces, and more. Every sector is adapting to a post-pandemic reality, and regional apartments are at the forefront of that change. Apartments are also greatly benefiting from the abundance of available debt at interest rates never before experienced in our lifetimes.

LA’s apartments are resilient for the same reason the regional economy is: people want to live and work in Southern California; it is on many levels as simple as that. It is through the periodic economic struggles we get to witness the resilience of our region. This storm will also pass—and those that have been waiting patiently for an opportunity to invest, will benefit greatly.