Los Angeles Multifamily Market Cools, Adaptive Reuse Gains Traction

Activity in Los Angeles’ multifamily market is slowing, with rising vacancy rates and lagging rent growth, though residential conversion projects are emerging as a key strategy to address the city’s significant housing shortage.

Vacancy rates increased from 5% in the first quarter to 5.2% in the second quarter, while new apartment construction has fallen by 30% since 2022. Approximately 59% of Los Angeles renters are considered rent-burdened, highlighting the ongoing affordability crisis. However, adaptive reuse – reimagining obsolete commercial spaces as residential units – is gaining momentum as a potential solution, offering a path to increase housing supply without extensive new construction. This trend is particularly important as Los Angeles faces a housing deficit of 456,000 units.

“Adaptive reuse in LA is still viable, and we have seen a lot of interest,” said Alexandria Hoevel, vice president and multifamily studio leader at Corgan. “This is one of the warmer areas of the local multifamily market, especially if the developer already owns the asset and is looking to convert. But it’s important to note these projects can be cost-prohibitive if the building is older and requires seismic retrofitting or accessibility upgrades.” Hoevel also noted a trend toward acquiring and revitalizing older multifamily assets, stating, “Any chance we have to upgrade building environments and existing communities without significant demo and reuse and bring higher value to those assets is a win.”

Despite the overall slowdown, certain submarkets are showing promise, including areas inland and in Orange County, the Inland Empire, San Diego, and Ventura County. Within Los Angeles County, Santa Monica and Culver City have seen activity, though most projects moving forward within the city limits are focused on affordable housing. Recent policy changes, like the Citywide Housing Incentive Program Ordinance (CHIP), aim to encourage density near transit corridors, building on the momentum of SB 79, which promotes transit-oriented development statewide. However, challenges remain, including rising insurance rates and the impact of Measure ULA, a tax on high-value property sales intended to fund affordable housing initiatives, which UCLA found led to an 18% decline in project starts.

Officials say Corgan and other industry leaders will continue to advocate for responsible density increases to address the housing crisis and promote sustainable urban development.