What’s the next apartment-development hot spot in Los Angeles? The most likely place is the western San Gabriel Valley, industry experts say.
“You can look at places such as Alhambra and Monterey Park for the next wave,” David Kaufman, a senior associate with real estate firm Marcus & Millichap.
The most lucrative markets Brentwood, Santa Monica and West Hollywood, among others have little space left, and up-and-coming markets such as Hollywood and downtown L.A. are hardly better in terms of available space. Further, community opposition to construction of large buildings makes it very difficult to build there.
“I’ve seen rents of $950 for a one-bedroom apartment in a dingy apartment building in Hollywood,” said Kaufman. “In newer buildings in Hollywood, a one-bedroom now goes for between $1,000 and $1,400. Those are Westside prices.”
Meanwhile, there is less opposition to multifamily housing development activity in the San Gabriel Valley than in areas farther west. And the San Gabriel Valley has been one of the growth engines of the regional economy, because fledging high-tech businesses have found it a cheaper alternative. New office and industrial developments have brought in tens of thousands of new jobs.
However, rents in areas outside the red-hot Westside may have to rise even higher before serious construction takes off. Just like any other part of L.A. County, with the exception of Playa Vista, the San Gabriel Valley is essentially an infill market, which means that developers often need to piece together several parcels to achieve the economies of scale that make new construction economically viable.
“So far, we have seen the rents that can sustain the costs of new construction only in ‘A’ markets, on the Westside, Beverly Hills, the better parts of Pasadena,” said Tony Solomon, sales manager with Marcus & Millichap. “And that’s where we saw the initial construction starts in the last few years. But Los Angeles is a very dynamic market, and construction permits for multifamily housing have being going up this year.”
According to data from M/PF Research Inc., which tracks rents at larger apartment complexes only, during the second quarter the average rent of an apartment in L.A. County was 12.6 percent higher than it was in the year-earlier quarter.
That means, on average, a one-bedroom apartment rents for $1,018 a month and a two-bedroom $1,213.
Still, that’s not quite as grim as the situation up north. Rents in San Jose were up by 32.4 percent for the year and in San Francisco by 29.1 percent, according to M/PF Research.
