Rental prices across the country have been steadily rising over the last few months as the pandemic crisis has lessened and markets have returned to pre-pandemic growth levels. In fact, according to Apartmentalist Economist Christoper Salviati, as of October 2021, “[e]very one of the nation’s 100 largest metro areas has seen month-over-month rent growth over the last five months.”
Los Angeles and Southern California rental markets have largely mirrored national trends, and it’s been expected that rental prices in the area would continue to rise over the next few months. However, few predicted the substantial amount of growth predicted by a recent USC real estate forecast.
Sharp increases in rent through 2023
The USC Casden Economics Forecast, released on November 10, 2021, predicts that the Southern California region will see a sharp and steady increase in rental prices over the next two years. Specifically, the report predicts that by the third quarter of 2023:
- Los Angeles County rent will increase by $252
- Orange County rent will increase by $410
- San Diego County rent will increase by $348
- Ventura County rent will increase by $310
- Inland Empire rent will increase by $241
Suburbs seeing lower vacancy rates and increased rent prices
One of the factors driving this increase in rental prices is low vacancy rates. Interestingly, even as cities begin reopening, there continues to be growing demand in suburban areas, with lower levels of demand in urban areas.
Richard Green, director of the USC Lusk Center for Real Estate, explains that, “COVID-19 caused a large-scale move from central cities to the suburbs that resulted in a sharp rise in apartment vacancies in Downtown L.A., Koreatown and Beverly Hills; and historically low vacancy rates in Rancho Cucamonga, North City San Diego, and Oxnard.”
“While vacancies are coming back down in urban areas,” Green observes, “the outskirts remain low and will see rents go up at a much higher rate than the cities.”
That said, the report anticipates that urban areas with vacancy rates over 5%, including downtown LA, Koreatown, and Beverly Hills, will nevertheless see moderate growth. Not surprisingly, areas like Oxnard, with a 1.86% vacancy rate, and Rancho Cucamonga, with a 1.69% vacancy rate, can expect triple-digit growth in the coming months.
What this data means for landlords
National trends, combined with regional data, provide an encouraging report for Southern California landlords. With that in mind, here are a few things landlords should consider when managing current properties or making decisions about buying and selling in the region:
- Pay attention to shifts in demand for suburban rental units. It’s too soon to know whether the pandemic shift will be a permanent one, and landlords should monitor this closely when considering long-term plans. Green puts it simply: “The question now becomes whether this historic move from the cities to the outskirts will remain permanent or return to pre-pandemic levels.” Green goes on to note that, “[t]his will have an impact on the entire region should multifamily construction ramp up.”
- With rent projected to increase over the next two years and vacancy rates expected to remain low, look for good opportunities to acquire more rental properties in the region.
- Check rental prices in your area to make sure that the rental rates for your properties are consistent with the current market.
- For tenants already in place, check the Lease Agreement for guidelines about raising rent and plan to adjust rent as needed at the next renewal.
- For new tenants, consider including a Lease term about annual rent increases based on the growth forecasts for your area.
After a difficult couple of years for landlords, it’s encouraging to see positive forecasts for the area’s rental markets. That said, landlords should continue to monitor market conditions closely as life gradually returns to a pre-pandemic normal.
Story by Kevin Kiene
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