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| Steven Taylor Los Angeles Skyline at night |
Los Angeles, known as the land of opportunities, is a paradise for real estate investors. As it is the second-largest city in the country that takes pride in its warm weather, diverse culture, and dynamic economy, it comes as no surprise that a number of people have included it in their list of best cities to move into. It remains eye-catching for prospective tenants who are searching for practicality in the so-called land of the rich and famous. With all of these in mind, the competition for real estate investments is certainly high-having a strategy that is aligned with the current pandemic situation is the key to making the right investment that can generate a great long-term return.
Like many other sectors that the COVID-19 pandemic has made an impact on, the real estate market in Los Angeles has also encountered various challenges that continue to exist today. Despite the continuous progress and developments in the business conditions for commercial real estate in Los Angeles over the years, it was not exempted from the domino effect of the pandemic. Delays and shortages in terms of project developments in the sales operation, costs estimates, and values and rates of return of existing real estate were those that had the greatest impact.
The recent survey conducted by NAIOP found that 86.6% of developers faced delays or shortages in construction supplies while some types of deal activities have doubled for office and retail properties over the last year. A decline in the leasing for existing development projects has already dropped by more than half while shortages of both construction supplies and workers were more severe than last year. Considering that the country is slowly adjusting to the post-pandemic era, they reported that all of these have remained unchanged since June 2020.
On the other hand, the recent real estate forecast in Los Angeles has shown signs that it is ready to bounce back in the market. Mastroeni (2021) reported that rental vacancies have increased by 2.5% which meant that rental rates are also down-but only by 0.4%. This may come as good news for real estate investors given the awareness that it may likely be a short-term impact. Given the remote working environment, rental vacancies were expected to rise but as L.A continues to be one of the fastest-growing cities, investors know that this will eventually decrease post-pandemic.
The Los Angeles metro area also stated that they are running on 2.2 months worth of housing inventory but it is important to point out that this is higher than the national average of 1.6 months. This simply means that despite the delays and declines in project developments, L.A can still thrive on its existing value chain while catching up on further investments. On top of that, the increase in the number of both single and multi-family housing permits can also reduce the inventory shortage in the future.
As unemployment rates are still high in Los Angeles-9.9% as of February 2021 and higher than the national average of 6.2%, investors should consider how this affects the longer rental vacancies in the area. However, it should still be noted that L.A always has its reopening plan one way or another which means that more jobs will eventually become available. It would be ideal for investors to have a strategy on how they would approach this as of the moment and in the near future.
Investors should also be aware that unemployment is still relatively high in Los Angeles, which could lead to longer vacancies. As of February 2021, the unemployment rate is 9.9%, a figure that is up 5.6% since the same time last year and is significantly higher than the national average of just 6.2%. Still, as LA prepares to enter the next phase of its reopening plan, odds are that many more jobs will become available and the rate should begin to drop.
With that in mind and the fact that L.A real estate market is not the most affordable in the country, investors should concentrate on the fact that there’s still an abundance of investment opportunities for those who can afford the median price of over 700K. It is also worth noting that some neighborhoods in L.A are much cheaper and completion between buyers is lesser. Flipping houses may come to a halt but this should not prevent real estate investors from focusing their investments on rental properties instead. — Steven Taylor
Originally published at https://steventaylorlandlord.com on September 14, 2021.
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