Valley Vacancy Rates Continue Plunge
The search for an apartment in the San Fernando Valley has become the toughest on record, with rent increases bound to follow, according to a research report by a leading investment brokerage.
Vacancy rates have been spiraling downward as the economy hums, reaching 5.5% in April in the Valley and adjoining Glendale/Burbank/Pasadena areas, according to the Marcus & Millichap Real Estate Investment Brokerage Co.
A further tightening is expected, boosting apartment values, said Jonathan Weiss, regional manager for Marcus & Millichap.
“Apartment vacancy rates have decreased steadily since 1994 at a rate of 1 to 2 percentage points annually, to an all-time low,” Weiss said in a statement. “The driving forces can be traced back to the dynamics of supply and demand.”
With economic indicators looking bright in the Valley for the next year, sales of multifamily buildings are expected to appreciate by 5%, according to the report released this week.
Momentum has picked up in the sales of smaller apartment buildings--those with five to 19 units--which accounted for half of the more than 400 apartment buildings sold last year, up from 35% in 1997 and 1996.
That demand is expected to put greater pressure on rents for mid- to low-range units, which had remained fairly steady as rents climbed for pricier units, according to the report. Average monthly rents in the northeast and West Valley, for instance, held steady at $600 and $630, respectively. But that is expected to increase by an average of 1.5% during the next year, according to the report.
The crunch for affordable housing stems from a lag in new construction to meet the demand. Fewer than 2,000 new units were completed over the past three years, accounting for only 1% of the Valley’s total stock of 187,300 multifamily dwellings. The new construction satisfies only 25% of the estimated growth in demand during the same period, the report found.
The pattern is expected to continue for the next year, when fewer than 500 units will be built in the Valley and Tri-Cities area.
The shortage, on the other hand, has spurred renovation of older buildings as owners seize the opportunity to recover the cost of improvements by filling long-standing vacant space.
Throughout the county, only about 5,000 new units are in the pipeline over the next two years, while 60,000 new rental units are needed to meet the demand during the next four or five years, area brokers say.
