COVID-19 is affecting housing across Los Angeles, but rental units in some of L.A.’s most expensive and luxurious buildings are bearing the brunt of what economists call “downward pressure.” The result? The cost of leasing so-called Class A rental properties—sleek apartments with amenities including Spin gyms, poolside cabanas, and dog spas—is headed down as vacancies increase. Meanwhile, rents for the city’s most affordable multifamily units remain largely unchanged.
“To this point in the pandemic, high-end luxury apartments are faring much worse than other segments of the market,” says Steve Basham, managing analyst at CoStar Group. “There are a limited number of renter households that can afford luxury apartments in L.A., so competition is more intense at the top of the market. On top of that, virtually every new project that is built in L.A. is a Class A luxury project.”
In downtown L.A., which saw the largest number of new luxury developments in the past decade (with thousands more units still under construction), rents declined 3.1 percent from January to March. Since the onset of the pandemic, they’ve dropped an additional 4.5 percent, bringing the decrease to nearly 8 percent.
DTLA’s Circa L.A. development—where amenities include a two-acre pool resort, communal tasting rooms, and a pet lounge, and rents range from $5,180 per month for a two-bedroom unit to $17,725 for a penthouse—is offering two months free as an incentive to prospective tenants. A few blocks away, Hope + Flower, another newly completed luxury high-rise with a wellness center and sauna pavilions, is offering up to ten weeks rent free for a 24-month lease.
“This doesn’t mean DTLA is going to die as a viable economic unit,” says Stuart Gabriel, professor of finance at UCLA’s Anderson School of Management and director of the Ziman Center for Real Estate. “Ultimately, this was happening anyway because it has simply become too expensive.”
Experts say the pandemic is less the cause of the decline in luxury rents and more an accelerant of forces in motion in L.A.’s economy.
“Pre-COVID, we were already starting to see the exit of both jobs and employees with those jobs, often in tech, from the most expensive markets to secondary tech hubs,” says Gabriel. “People from Los Angeles were already moving to high-amenity, high-millennial-friendly cities like Portland, Austin, and Boulder. The difference is that now that no one is asking you to come into the office, destinations are much more dispersed. Pick your place.”