Los Angeles Multifamily Housing Market – Mid-2025 Report

Market Overview

Los Angeles’s multifamily fundamentals are gradually improving through mid-2025, although growth remains modest. The market’s overall vacancy rate has edged down to about 4.9% (from 5.0% at the end of 2024) as absorption has slightly outpaced new supply. In the 12 months ending mid-2025, roughly 9,900 units were absorbed versus 8,500 units delivered, reflecting a balanced supply-demand dynamic. Year-over-year rent growth is still subdued at approximately 0.6% – below the U.S. average (~0.9%) and well under Los Angeles’s long-term average (~2.4% annually since 2000). This slow rent growth is similar to last year’s pace, indicating that while demand has improved, the market’s recovery remains measured. According to InnoWave Studio sources, one silver lining is that new construction levels in L.A. are among the most restrained of any major metro, which has helped prevent a sharper rise in vacancy. Overall, mid-2025 conditions show stable occupancy and tepid rent gains, with limited new supply providing a floor for the market.

Economic and demographic context provides important background to these trends. Los Angeles has experienced soft employment growth relative to other large metros, in part due to job losses in key industries. The metro’s unemployment rate (~6%) remains well above the national average (~4%). The entertainment and tech sectors, significant drivers of the local economy, saw downturns (e.g. layoffs and the 2023 writers’/actors’ strikes) and have been slow to fully rebound. Additionally, population growth has stalled – the county’s population declined roughly 3.3% over the past five years (a net loss of about 340,000 residents) amid high costs and outmigration. These economic headwinds and demographic outflows have tempered housing demand, as fewer new households form in L.A. compared to faster-growing Sun Belt markets. Indeed, recent renter demand in L.A., while improved from last year, is still relatively weak for a region of its size. InnoWave Studio sources note that the market’s gradual recovery thus comes against a backdrop of persistent affordability challenges and competition from cheaper cities drawing some residents away.

Despite these challenges, higher-income renter segments have shown notable resilience. Demand has been strongest in Class A luxury communities, as affluent renters continue to seek top-tier apartments. Over the past year, 4- and 5-Star properties (which comprise only ~15% of inventory) absorbed about 7,000 units, slightly exceeding the ~6,800 new units delivered in that segment. This helped push prime segment vacancies down from double digits during 2020–2021 to roughly 8.5% by Q3 2025. In contrast, Class B/C (3-Star and 1–2 Star) properties – which cater to lower- and middle-income renters – saw much more muted demand (about 2,100 units absorbed in 3-Star, and only 820 units in 1–2 Star over the past 12 months). Occupancies in these more affordable segments have improved only marginally, as many working-class renters remain strained by near-record rent levels and economic pressures. This bifurcation highlights how the recovery is uneven: upscale submarkets are leasing up relatively well, whereas budget-oriented neighborhoods face flat demand as renters hit affordability limits. Notably, overall market rent growth is essentially flat in top-tier buildings (around 0%–0.2% YoY) and under 1% even in lower-tier units, underscoring the lack of pricing power for landlords across the board. Going forward, forecasts anticipate only moderate improvement – with metro-wide rent growth expected to climb just above 2% by 2026 as vacancies slowly tighten. In sum, Los Angeles enters mid-2025 in a cautiously optimistic position: demand has inched up and vacancy is inching down, but economic headwinds and affordability constraints keep the pace of growth modest.

Construction and Development

New apartment construction in Los Angeles remains notably constrained compared to other major cities. In the past four quarters, approximately 7,900 market-rate units were completed in the metro, equivalent to only about 0.7% inventory growth. This growth rate is well below the national average (~3.1% of stock added) over the same period. In fact, Los Angeles has one of the slowest development rates among large U.S. metros – a function of high construction costs, stringent regulations, and community resistance to density. For perspective, the metro’s apartment inventory expanded just 9.9% in the last decade, versus about 28% growth nationwide. Annual deliveries from 2018–2023 were relatively steady (roughly 9,000–12,000 units each year) but are now trending down due to fewer project starts and rising financing costs. Developers face sharply higher debt costs since 2022, making it difficult to underwrite new projects, and this has led to a pullback in the construction pipeline. As of mid-2025, around 20,000 units are under construction metro-wide (about 1.9% of existing stock), which is a smaller pipeline than most peer markets (the U.S. average is ~2.9% of inventory). With only about 6,000–7,000 new apartments expected to deliver in 2025 (down from ~9,000 in 2024), supply growth is set to align even more closely with demand in the near term. This bodes well for landlords: the restrained pipeline should help vacancies continue to gradually decline through 2025, assuming tenant demand holds steady.

Several structural factors have shaped these development trends. Barriers to construction in Los Angeles are notably high – the result of expensive land and materials, protracted permitting processes, and often vocal anti-density sentiments in many communities. These constraints mean that when projects do get built, they skew heavily toward the high end of the market (where rents are high enough to justify costs). Over the past 10 years, roughly 90% of new units delivered were in 4- and 5-Star properties, and about 80% of the units currently underway are likewise in upscale developments. In other words, virtually all new multifamily construction has been oriented toward luxury mid-rise and high-rise projects, as more affordable workforce housing projects are typically infeasible given the economics. Developers have also concentrated activity in areas most receptive to greater density. InnoWave Studio research notes that Downtown Los Angeles, Koreatown, and Hollywood have been focal points for new development, in part because these districts already feature high-density zoning and ample older sites ripe for redevelopment. For example, Downtown L.A.’s apartment inventory has doubled in the past decade, fueled by both ground-up projects and adaptive reuse conversions of obsolete office buildings. Koreatown alone saw about 1,400 new units delivered in the past 12 months – the most of any submarket – and it continues to boast one of the largest pipelines in the metro. As of mid-2025, Downtown and Koreatown dominate the construction pipeline, with roughly 2,100 and 2,000 units underway respectively (amounting to 5% and 3% of those submarkets’ inventories). A dozen other submarkets have construction levels above the metro average (on a percentage basis), but many large swaths of the region have little to no new development in progress. Notably, many of the more affordable suburban and outlying areas (e.g. parts of the San Fernando Valley, South Los Angeles) have seen virtually no new supply in recent years, which contributes to tighter vacancies in those locales (as discussed in Submarket Highlights). Overall, Los Angeles’s development landscape in 2025 is defined by selective growth: a handful of high-density urban neighborhoods are absorbing the bulk of new deliveries, while vast portions of the metro add housing stock at a trickle.

Architectural Perspective

From an architectural and design standpoint, Los Angeles’s new multifamily projects reflect both the city’s constraints and its creativity. Given the high costs of land and construction, developers have trended toward larger, higher-density building formats – predominantly mid-rise podium apartments and, in some cases, high-rise towers in the urban core. Wood-frame five- to seven-story buildings over a concrete podium are especially common, as they maximize unit count while (just) staying under expensive high-rise construction thresholds. Many new communities emphasize luxury amenities and mixed-use elements to attract affluent renters and justify top-tier rents. For instance, a recently delivered 230-unit development in Koreatown, Western Station, features a rooftop pool, co-working space, and ground-floor retail offerings – amenities that increasingly come standard in Class A projects. Design trends in L.A. thus skew toward creating a lifestyle experience: modern apartments now routinely offer resort-style facilities (pools, fitness centers, roof decks), as well as work-from-home conveniences (business lounges, shared workspaces) in response to evolving tenant demands. Developers are often incorporating sustainable design features too (e.g. solar panels, EV charging, enhanced energy efficiency), although such features are sometimes limited by budget constraints, especially outside of high-end projects. Notably, most new developments are mixed-use or transit-oriented, especially in the City of Los Angeles, where policy incentives (such as the Transit Oriented Communities program) encourage including affordable units and building near transit in exchange for density bonuses. These measures have influenced the typology of new housing – favoring mid-rise density along transit corridors – but navigating the zoning code and approval process remains challenging.

Adaptive reuse has become an important part of the architectural landscape as well, particularly downtown. Los Angeles’s Adaptive Reuse Ordinance (originally enacted in 1999) has facilitated the conversion of many older office and industrial buildings into apartments. This reuse trend helped drive a significant portion of downtown’s residential growth over the past two decades, and it continues today as developers look for creative ways to add housing in built-out areas. With rising office vacancies post-pandemic, interest in office-to-residential conversions is only increasing, although high conversion costs and code compliance issues limit the feasible candidates. Still, notable projects have succeeded: former office high-rises, historic warehouses, and even old hotels have been transformed into trendy lofts and rental units under this program. In terms of urban form, Los Angeles historically had a reputation for sprawl and low-rise development, but the multifamily sector has been steadily verticalizing. High-rise apartment towers are now a fixture of the Downtown skyline and parts of West Los Angeles. Projects like the 60-story “Olympic & Hill” tower underway in downtown (685 units slated for completion in 2025) exemplify the push toward vertical luxury living in the city’s core. At the same time, mid-rise infill projects are adding density in neighborhoods from Hollywood to Marina del Rey. However, stringent zoning and community opposition still cap building heights in many areas, meaning mid-rise construction is often the upper limit in more suburban neighborhoods. The permitting process itself is another critical hurdle: securing entitlements in Los Angeles can take years, especially if exceptions or upzonings are needed, which adds uncertainty for architects and developers. In summary, L.A.’s development architecture is characterized by innovative, amenity-rich designs within the bounds of heavy regulation. Projects are increasingly upscale and dense, employing creative solutions (like adaptive reuse and mixed-use planning) to deliver new housing in a notoriously difficult building environment.

Investment and Capital Markets

After a volatile period, Los Angeles’s multifamily investment market is stabilizing in mid-2025. Sales volume has rebounded from the 2023 trough: about $6.5 billion in apartment properties traded in the past 12 months, up from roughly $4.6 billion in the year-prior period. This marks a clear improvement in deal flow, as 2023 had seen the lowest transaction activity in roughly 15 years amid interest rate hikes. However, today’s volume remains below the market’s peak in 2021–22, reflecting a still-cautious investment climate. Higher debt costs since 2022 have had a direct impact on pricing – average multifamily values in L.A. fell by an estimated 15%+ from their 2022 peak. The average sale price currently stands around $370,000 per unit, according to InnoWave Studio sources, down from the frothy highs of the last cycle. Notably, this pricing correction appears to have found a floor: values have more or less leveled off since late 2023, suggesting the market has adjusted to the new interest rate environment. Correspondingly, cap rates have expanded from the record lows of the prior boom. Whereas prime Los Angeles apartment cap rates were in the low-4% range at the peak, today typical market cap rates are in the mid-5% range (the average in recent deals is ~5.4%, with value-add and suburban assets trading higher). This re-pricing has improved investors’ yield expectations and is enticing more buyers back into the market, even as borrowing costs remain elevated.

Crucially, private buyers are leading the recovery in sales activity. Over the past year, local private investors and high-net-worth individuals have accounted for roughly 75% of multifamily acquisitions (by dollar volume). This is an even larger share than historical norms – traditionally, private capital was about two-thirds of the buyer pool. These buyers have been active in targeting well-located assets, often with a value-add or long-term hold strategy, to capitalize on softened pricing. In contrast, institutional investors and REITs have pulled back somewhat. Large national players (institutions, private equity funds, and listed REITs) comprised only ~25% of buyers in the past 12 months, down from nearly 30% historically. Several factors are damping institutional appetite in L.A.: the rise of new transfer taxes in 2023 (such as Measure ULA’s “mansion tax” on high-value property sales in the City of Los Angeles) has added transaction costs, and concerns about the regulatory environment have grown. According to market brokers, some investors are wary of L.A.’s stricter tenant protections (e.g. lengthy eviction moratoria during COVID, and ongoing rent control constraints) which can limit revenue growth even as expenses climb. The overall sentiment is that any acquisition in Los Angeles must offer a compelling enough discount or upside to offset policy and operational headwinds. As a result, deal negotiations have been protracted, and many would-be sellers are holding on rather than transact at today’s adjusted prices. Those institutional sales that do occur are often driven by strategic rebalancing – for example, a REIT exiting an older asset or a fund reaching its disposition timeline.

Several recent sales illustrate the market’s dynamics. In early 2025, a private investor (Friedkin Property Group) acquired La Belle Hollywood Tower, a 146-unit mid-rise in Hollywood, for about $52.2 million (approximately $357,000/unit). Notably, the seller took a loss: they had paid $63 million for the asset in 2015, meaning the property’s value dropped ~15% over the holding period. The decline can be attributed to Hollywood’s flood of new deliveries over the past decade, which kept rent growth in that submarket to only ~20% in ten years (versus ~30% metro-wide). Another headline transaction was the sale of Highridge Apartments in Rancho Palos Verdes, a 257-unit garden community, which traded in February 2025 for $127 million (approximately $494k/unit). The buyer, The Bascom Group (a private equity firm), purchased this asset from Essex Property Trust (a REIT) at an in-place cap rate of 6.4% – a relatively high yield by L.A. standards, reflecting the property’s age and tertiary location. Bascom obtained 72% LTV financing and plans to implement extensive renovations, aiming to reposition the 1970s-era complex into a resort-style, amenity-rich property. This value-add strategy is emblematic of many private buyers’ approach in 2025: leverage the higher cap rates and softer pricing to acquire assets, then drive performance through upgrades as the market improves. Looking ahead, industry forecasts expect that pricing has bottomed out and will slowly begin to recover as fundamentals strengthen. Cap rates are anticipated to stabilize (the recent spike in yields is likely past its peak), and incremental rent growth gains in the coming years could bolster property incomes. However, any price appreciation will be gradual – projections suggest that Los Angeles multifamily values may not reach their prior 2022 peak levels again until roughly 2029. For investors, this means a long-term horizon may be required to fully realize upside, but sentiment is improving. As of mid-2025, the capital market tone is one of cautious optimism: buyers are returning selectively, pricing discovery is settling, and the expectation is that better days (and higher values) lie ahead as the market’s fundamentals slowly regain momentum.

Submarket Highlights

Los Angeles’s vast metro area contains dozens of submarkets, each with unique performance drivers. As of mid-2025, the gap between high-performing and lagging areas has widened, often correlating with affordability and recent supply. Below are some notable submarket trends by rent growth, vacancy, and construction activity:

• Top-Performing Submarkets: More affordable, supply-constrained areas on the metro’s periphery are seeing the strongest metrics. For example, South Los Angeles and the Central San Fernando Valley are outperforming with annual rent increases around 3%–3.5% and very low vacancies in the 2.5%–3% range. These submarkets offer below-average rents and have added little new inventory for decades, creating tight conditions that enable above-trend rent growth. Many San Fernando Valley communities in general (e.g. North Hollywood, Van Nuys, etc.) maintain vacancies around 4% or below, thanks to their relative affordability and limited new development. Lower-cost neighborhoods with decent accessibility – including parts of Inland Empire-adjacent markets and older suburban pockets – similarly report healthy demand and steady rent gains, as priced-out renters seek value markets within Greater L.A.

• Lagging Submarkets: Areas that have seen heavy new supply and/or boast very high rents are experiencing softer performance. Koreatown is a prime example: it recorded roughly –1% year-over-year rent change (i.e. slight rent declines) and has a vacancy around 6%, one of the highest in L.A.. Koreatown led the metro in new deliveries (about 1,400 units added in the past year), which has outpaced demand and put downward pressure on rents. Other expensive core areas with significant construction have elevated vacancies as well – notably Downtown Los Angeles, Santa Monica, and the Westside submarkets like Beverly Hills/Century City/UCLA, each with vacancy rates above 6%. These areas command premium rents (e.g. ~$2,800–$3,400 average monthly rent in the Westside), and during the recent slowdown many higher-income tenants left or doubled up, leaving more units empty. Downtown L.A., in particular, is absorbing a wave of new high-rises from its building boom, resulting in competitive leasing and generous concessions to lure renters. Hollywood and adjacent central neighborhoods have also underperformed somewhat – as mentioned, an abundance of new luxury projects there kept rent growth low over the past decade, and current vacancies are elevated in larger Hollywood complexes (often in the 7–8% range). On the other hand, some traditionally lower-rent areas in East and South LA (e.g. parts of Southeast Los Angeles or East Hollywood/Silver Lake) are tightening up, as they haven’t seen much new construction and are benefiting from renters seeking relative bargains. Overall, investors and developers are closely watching these trends: the best opportunities may lie in undersupplied, lower-cost submarkets with upside for rent growth, whereas the greatest challenges are in overbuilt luxury nodes where concessions and slower lease-ups will persist until the new supply is absorbed.

In summary, as of mid-2025 the Los Angeles multifamily market shows steady but measured improvement. Vacancies are gradually ticking down and rent growth, while still under 1%, is expected to gain momentum as the supply pipeline shrinks. Construction remains focused in a few denser enclaves, constrained elsewhere by costs and policy. Architecturally, new developments lean upscale and innovative within a challenging entitlement environment. The investment arena is finding its footing post-correction, with pricing adjusting to new norms and private capital driving activity. Finally, the diverse submarkets of L.A. tell a story of two worlds: the more affordable neighborhoods with little new construction are enjoying strong demand and low vacancies, whereas luxury urban nodes digesting new supply are in a period of softness. For investors and developers, this means opportunities must be evaluated in a hyper-local context. Looking ahead, according to InnoWave Studio sources, modest growth is expected to continue as Los Angeles works through its economic headwinds and new supply, setting the stage for a potentially stronger performance in late 2025 and beyond.

Sources:

Multifamily Report by InnoWave Studio

• Vacancy trends from page 3 of the July 2025 Multifamily Report

• Rent growth comparisons by segment from page 7 of the July 2025 Multifamily Report

• Construction pipeline data from pages 12–13 of the July 2025 Multifamily Report

• Submarket performance map from page 25 of the July 2025 Multifamily Report

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