You can also watch The Goldfinger Group’s webinar on this topic HERE
To nobody’s surprise, Los Angeles, and specifically renting in Los Angeles, has drastically changed since the start of the COVID world. Many renters have fled the city seeking healthier physical and monetary environments. Those who have stayed are looking for more than they had before.
Rents have dropped across the board throughout LA. Mid-tier submarkets (primarily encompassing essential workers who have maintained employment) have seen monthly rents decrease from $100-$200 depending on the unit size and higher end market rents (embodying tech workers who can work from anywhere) roommates, etc., are down significantly more.
What factors are causing rents to drop?
1. Rental demand is down leading to higher vacancy rates. Starting in March, many tenants have moved out of the city and into suburban areas or with family to reduce virus exposure and save money.
2. Those living in higher end housing are reducing their overhead. Job security has become a real thing. Without certainty of having a job from one week to the next, people don’t want a high rent payment looming over them. Roommates make up a majority of these apartments (3 young people sharing $5,000+/month), which brings safe home environments into question. To escape potential risks around exposure, roommates has become less desirable and less frequent, decreasing the demand for 2&3 bedroom units in high profile locations.
3. Tenants have much higher standards now. They are looking for more value. The majority of people are working from home and want the space to accommodate, whether it’s indoor or outdoor. Everyone is seeking the right apartment and building to fit all of their needs instead of prioritizing proximity to the office.
4. Dine in and in person restrictions have caused experience-based attractions, bars, restaurants, live events, and more to close their doors. The effect is renters not paying a premium to be in the action and energy of the city because there isn’t the same buzz. FOMO, fear of missing out, doesn’t exist during COVID.
How are owners and property managers responding?
Just because vacancy rates are higher and rents are down doesn’t mean that owners are allowing anyone and everyone into their available units. Due to the eviction moratorium and a lot of people getting their income from unemployment, most owners are getting even stricter on their approval criteria.
We are leasing up one of properties close to Downtown LA. We have received numerous applications and have leased 7 of the 8 available units, but denied approximately half of the applicants for a variety of reasons. A year ago, we would have accepted the majority, but we have to protect ourselves and our investors given the current environment.
The scales have rapidly shifted from what has historically been a housing shortage market to a renter-controlled market. It will remain this way for the short term, but we are highly optimistic LA will return to its normal state of being one of the most desirable places to live. The weather, beaches, attractions, and everything else it has aren’t going anywhere. People both locally and around the world will once again look for all opportunities to live in LA.