North Hollywood, California Multifamily Market Report

Market Overview

North Hollywood, located in the eastern San Fernando Valley, originated as an independent city named “Lankershim” before annexation into the City of Los Angeles. In recent years, the neighborhood has become one of the most densely populated in the Valley and is home to the NoHo Arts District and the Academy of Television Arts & Sciences. It is also a major transportation hub, serving as the nexus point between the Orange Line busway and the Red Line subway.

North Hollywood is home to a vibrant community of approximately 167,500 residents with a median age of 36.8 years and an average individual income of $34,270. The city’s population growth is growing at a rate of 1.5% per year, which is faster than the average population growth rate for Los Angeles County at 0.8%.

The area is home to a diverse range of businesses, including major media and entertainment studios, such as Universal Studios and Warner Bros. Studios. Several prominent manufacturing and logistics facilities, such as Mattel, Amazon, and FedEx are also present. The area is home to many technology startups and established companies as well, drawn to North Hollywood’s proximity to major universities and the abundant talent pool in the Los Angeles area.

Macro Market Recap

Interest Rate Hike

In July 2023, the FOMC increased interest rates again, putting the federal funds target rate range between 5.25% and 5.50%, marking the 11th rate hike in this cycle aimed at curbing high inflation. Even with the pause in June, a quarter-point rate hike at the July meeting was widely anticipated, aligning with the Fed’s commitment to achieving both maximum employment and price stability. The FOMC’s dot plot, which shows Fed officials’ individual rate projections, shows that most Fed officials expect the federal funds target rate to be between 5.50% and 5.75% at the end of the year. This would mean an additional rate hike of at least 0.25 percentage points before the year ends.

Upward Trend in Inflation

In September 2023, inflation held firm at 3.7% for the second consecutive month, indicating a consistent upward trajectory following a 0.5% surge in August. This suggests that inflation rates are maintaining their upward momentum, a trend that is of significant interest and concern to market observers.

U.S. Savings Exhausted, An Economic Challenge

As per the latest San Francisco Federal Reserve report, excess savings have been entirely depleted as of Q3 2023. With the well of excess savings running dry, there is a growing concern that the U.S. economy could face even greater challenges than initially anticipated. The absence of excess savings, which has been instrumental in driving discretionary spending, is poised to reshape the economic outlook.

North Hollywood Real Estate Insight

By the Numbers Last 12 Months

Source: CoStar Group

• Units Under Construction: 463
• Units Delivered: 434
• Vacancy Rate: 4.5%
• Asking Rent Growth: 1.2%
• Sales Volume: $220M

Over the past four quarters, there was a net absorption of 130 units by renters, which is lower than historical absorption activity. During the same period, 430 new units were delivered, increasing vacancy rates from 4.1% a year ago to the current 4.5%. Rents have been stable since early 2023, with average asking rents increasing by 1.2% over the past 12 months. The average asking rent in the submarket is $2,185 per month, slightly below the L.A. metro average of $2,230 per month. There are currently 463 units in the construction pipeline, representing 0.9% of existing units.

Outlook

Total transaction volume experienced a substantial 44% YOY downturn, and the average sale price per unit decreased by 25% YOY. The average cap rate has increased by 25 basis points, while the spread between buyers and sellers remains wide. Many sellers are asking for yesterday’s pricing, but the closed transactions show that buyers are demanding significant discounts. The dramatic drop in transactions, which began in Q2 2023 and extended into Q3 2023, can be attributed to the ULA (Mansion Tax) introduced as a key measure. This prompted a rush in major property sales, resulting in the current scarcity of such properties. The currently sought-out transactions are all-cash deals, with a noticeable increase in seller financing to alleviate the increased pressure from bank financing. As the landscape evolves, the exchange and cash buyers are emerging as dominant forces, reshaping the market dynamics.