Page 80 - AAGLA-JULY 2022

Property Management
FA Mid-2022 Forecast for Rental Real Estate
By David Crown, Los Angeles Property Management Group
or more than 30 years now, I’ve been a student Angeles Area, you’re in a good position. Despite a slight drop of cycles. It all began with my father sending in the number of home sales near the end of 2021, housing me articles clipped from the Los Angeles Times prices actually rose in December of that year. In Los Angeles about where the real estate market would go, County, Norada Real Estate Investments estimates that the reminding me never to assume that anything median home price currently sits at $826,500. The California in this business was permanent. I got into real Association of Realtors has predicted a 5.2% increase in housing estate in the middle of a downturn, and I’ve prices in 2022, making this year a time when owners can’t be
worked in the industry through recessions and booms. I took faulted for finally selling.
my dad’s lesson to heart, and this year, I’d like to share it with you, the inquiring rental owners and property managers of the greater Los Angeles Area. Let’s talk about what’s to come in the next year and how it might affect every type of rental property owner.
It’s worth noting before we begin our discussion, even the experts predict markets incorrectly on occasion (just ask Edward Leamer, the UCLA Anderson Forecast Director who said, “No recession this time,” in the early months of 2008). But they’re right more often than they’re wrong, and so long as we do not take their predictions as infallible, we can learn a lot from them.
Commercial and Industrial Property
In plain terms, 2020 and 2021 were rough years for the commercial real estate market, and you don’t have to have an Ph.D. to understand why. With millions of people suddenly working from home rather than in traditional office settings, the demand for office buildings understandably suffered. Furthermore, E-commerce took a massive leap, which negatively impacted the market for brick-and-mortar retail spaces. Interestingly, the same phenomenon that harmed retail helped industrial, making it a bright spot in the commercial real property sector.
A return to some degree of normalcy has shown that the decline in demand for office and retail spaces was overblown in reports, and J.P. Morgan now predicts a year of growth for the overall commercial market in 2022. If you’re offered a longer-term lease with reasonable increases, you might actually be doing the safe thing to protect yourself in any potential future downturn. I’m in favor of these right now.
Single-Family Residential Property
If you own or manage single-family rentals in the Greater Los
However, although there might be a bit of turbulence with interest rates, I believe that single-family homes in the Los Angeles Area should fare well in the long term. So, if you don’t need to sell right now, don’t do it. A housing crisis like the one that occurred in 2008 is not on the horizon. People who own homes right now have had to rigorously qualify to get loans, so the market isn’t in the same position it was back then.
Multifamily Residential Property
Multifamily also appears poised to remain on the incline. In fact, real estate broker CBRE expects a record-breaking 2022 for the sector: “We forecast multifamily occupancy levels to remain above 95% for the foreseeable future and nearly 7% growth in net effective rents next year.” In light of these numbers, I believe that apartment owners and managers of multifamily buildings will likely continue to be rewarded after several difficult years of increased regulation and COVID-19-related hardship. In other words, unless you are pressing to move capital out of state immediately, you should just hang on for a while. Additionally, make sure to invest in the turns of your vacancies, and don’t be conservative with upgrades. This way, you’ll make sure your properties are earning the highest market rents upon re-renting in rent-controlled environments.
In summary, I believe that investors in California rentals don’t stand to lose ground in any property type for the rest of 2022. I tend to write these pieces for the long-term holding audience, and I don’t see any reason to jump ship just yet if ever.
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David Crown is the Chief Executive Officer of Los Angeles Property Management Group and has more than 25-years of experience managing all types of income properties. He is a hands-on leader who has managed properties in 16 different states. For more information, Mr. Crown can be reached directly at (323) 433-5254.