Valley Apartment Market Shifts Into High
High-end. High-tech. Higher priced. As the economic upturn lifts the commercial real estate market out of the dumpster, those are the three key trends in the local apartment industry, according to real estate professionals in the San Fernando Valley and elsewhere in Los Angeles County.
The Valley, continuing to ride a boom in the entertainment industry, has quietly become a Southland testing ground for a new breed of high-end apartments, boasting such bells and whistles as on-site computers, fax machines and high-speed Internet access in each unit. The ‘90s-style perks are designed to attract more work-at-home tenants.
At the same time, rents countywide in 1998 have escalated to levels unseen most of this decade, according to a trade association.
The trends, observers say, mean increased revenue for landlords and more choices for high-end consumers, but more belt-tightening and fewer options for middle- and low-income tenants, who face increased housing costs and no appreciable increase in supply.
“It’s definitely turning to more of a landlord’s market than a tenant’s market, which is good for owners,” said Katherine Bergh, a senior vice president at the Sherman Oaks office of the Grubb & Ellis commercial real estate firm. “There’s very little new construction of multifamily housing.”
To the extent that there is apartment construction, industry professionals say, it’s at the upper end of the price chart.
The new kid on the block is a former corporate housing complex, revamped following the Northridge earthquake and reborn as the Premiere in Sherman Oaks.
The 372-unit complex, which opened phase one this month, boasts a host of business-friendly features, most notably Internet access for each unit that is 100 times faster than access via a standard 28.8 modem.
The in-home connection, which is free the first three months and $20 per month thereafter, mirrors trends seen in other tech-heavy areas such as Seattle and Northern California. Last year, Cox Communications announced plans to offer phone service and Internet cable modems to renters in the Irvine Apartment Communities, but the in-unit access at the Premiere may well be a first for Los Angeles, local real estate professionals said.
“I have to praise the Premiere,” said Robert Philips, marketing manager for Oakwood Corporate Housing. “There is a limited number of residential buildings doing this nationwide.”
For its part, Oakwood announced plans Thursday to offer high-speed Internet access and computer networking services at its properties nationwide, beginning with a new flagship complex near the Microsoft headquarters in Washington.
The Premiere also offers residents access to a “virtual office” with computers and fax machines, as does the nearby L’Estancia luxury apartment complex in Studio City.
The two are early examples of what many real estate professionals say is the wave of the future for high-end properties--business-friendly features coming to a living room near you.
The fact that both high-end complexes chose to locate in the Valley is another nod to the growing significance of the entertainment industry.
“It’s recognizing the economic recovery of the Valley, especially the boom in the entertainment industry,” said Paul Jennings, chief executive officer and co-chairman of PCS Development, which owns the Premiere.
“It’s reinvesting in the Valley,” Jennings said, adding that more than 90 of the 180 phase one units rented in the first three weeks. “It’s a reversal of an attitude of [needing to] move to the suburbs outside of L.A. We represent a confidence in the city of L.A.”
Said Philips: “The Studio City, Universal, Burbank, Glendale corridor is becoming very tech-oriented with all of the entertainment industry work that’s grown very much in the past few years.”
Industry workers “would love to come home to that 134-101 [freeway] corridor,” he added.
Such digs are hardly cheap: Rent for a two-bedroom apartment at the Premiere can run as high as $1,800.
Figures from the Apartment Owners Assn. of Southern California indicate that rents countywide aren’t about to get cheaper any time soon.
The average price for a vacant or recently rented apartment in Los Angeles County jumped to $654 as of June, up nearly 6% over the June 1997 figure, according to preliminary data from the trade group. Apartment prices are now at their highest level since the early 1990s, said Jim Rodriguez, an official with the association who compiles the annual report.
In a twist that he could not explain, rents stayed the same or increased in every region of the county except the Valley, where, early figures show, the average asking price dropped by about 3%--from $626 in June 1997 to $606 this year.
“It seems that the Valley is moving contrary to the general trend for the county,” said Rodriguez, who added that final data will be available next month. “From the overall county point of view, the trend has definitely been upward in rents and downward in vacancies.”
Some industry officials suggested that low rents in a few low-income areas of the Valley may be pulling the overall rent figure down. But they said continuing population growth in the Valley will likely make any current rent breaks short-lived.
Figures from the association put the Valley vacancy rate at about 4.6%, almost half the 8.2% rate seen a year ago.
Using monthly figures from the Department of Water and Power, James Fleck, who started his own research firm after spending 15 years with the Los Angeles Housing Department, put the Valley vacancy rate at roughly 6%. Even so, he said, those numbers are small compared with the roughly 14% rate after the Northridge earthquake.
“So you can see there’s been an enormous drop in the vacancy rate, [and] at the same time, the number of units has increased only modestly.”
One rough indication of housing supply, the number of individually metered electric units in the Valley, increased by 2% between late 1994 and June of this year--rising to 207,764.
“For the past four or five years there’s been no [apartment] construction going on,” said Jonathan Weiss, regional manager at the Encino office of Marcus & Millichap, a real estate consulting firm. “Which is very unusual given the size of the marketplace. We’re getting close to demand outweighing supply.”
Noting that vacancies are still posted in some middle- to low-income areas, particularly in Van Nuys and the northeast Valley, Mary Ellen Hughes, executive director of the Apartment Assn. of the San Fernando Valley & Ventura County, said she does not see an immediate housing crunch. But, she said, given declining vacancy rates and the dearth of construction, that may not be the case for long.
