Downtown LA Renters Hold All The Cards As Landlords Cut Prices

Renters have the upper hand in Downtown Los Angeles, with sluggish apartment rent growth motivating landlords to offer concessions and even lower rents. 

Rents fell 1.2% in Downtown in the first three months of this year, according to a Colliers report.

“We've had to lower our rents and sort of chase the market down to fill up our buildings,” G.H. Palmer Associates Senior Vice President of Development Darrel Malamut told attendees at Bisnow’s Downtown Los Angeles CRE Summit at the Aon Center in Downtown. 

There’s a heavy use of concessions throughout the market, AvalonBay Senior Vice President of Development Mark Janda said. He pointed to perceptions that the Downtown area is not safe and to persistent issues with street cleanliness as factors that make it hard to attract renters from other parts of the city, despite the neighborhood’s amenities. 

Downtown’s main attractions are all the things outside of a person’s apartment, but if renters don’t want to go outside, those amenities lose their luster, Janda said.

“It's not a real rosy picture,” he said. 

Downtown renters are budget-minded and have come to expect to find deals in the area, and many landlords are obliging to try to keep occupancy up. The neighborhood’s occupancy was at 91.6% in Q1, below the citywide average of 93.9%, according to Colliers.

“People are very cost-conscious right now, and I think you see that in the downtown market,” Housing Authority of the City of Los Angeles Chief Strategic Development Officer Jenny Scanlin said. “Renters are looking for incentives. Renters are now assuming that there will be discounts, and that's new. Obviously, we haven't seen that in quite a few years, but that is where we are at today.”

Owners looking to buy in Downtown are also poised to benefit from the choppy market and occupancy challenges. Buying fairly new product in Downtown for less than it would cost to build that unit today is possible, and those deals are helping Scanlin's agency find opportunities to secure long-term affordable housing in the neighborhood, she said.  

HACLA bought a 154-unit building late last year in Downtown for $51.3M, or about $330K per unit. The property was completed in 2023. 

Projects that are under construction now and have a construction loan coming due are looking to sell rather than try to finish the project and work to get the building occupied, Scanlin said.

“Anything that is under construction, or that’s got cranes going, we assume is probably going to hit the market, and it probably will get purchased,” Scanlin said. 

She had less optimism about projects with entitlements but that had not yet begun construction. 

“I don't think anyone is that interested in right now, unless you've got really patient capital to sit and hold that property for a few years,” Scanlin said. “That's just not going to trade.”

A thread running through the challenges to Downtown was the loss of foot traffic from office workers. Downtown, at its height, was reportedly host to an influx of 500,000 people during the workday, and those workers supported businesses, filled the streets at lunch time, and packed bars and restaurants for happy hours and dinners. Their adoption of hybrid or remote work has had a lasting impact. 

One glimmer of hope has been the return of government workers to the Downtown area. There are an estimated 10,000 federal workers in various stages of coming back to work, said Louie Silva, a federal leasing capital project manager with the General Services Administration. 

Silva pointed to a new 74K SF lease the Federal Public Defenders office took in the former Los Angeles Times building now owned by Onni. With the federal government looking to sell some of the older buildings it owns locally, agencies will need to relocate to privately owned space, and Downtown is well-situated to capitalize on those space needs, Silva said. A wave of new lease requirements is in the works now. 

“You haven't seen it this second, but it is coming within four to six months,” he said. “These agencies need to go somewhere before they sell these buildings because they're trying to get rid of them as quickly as they can.”