CatalystCRE
INSIDER'S INSIGHT: THE SMARTER TAKE ON MULTIFAMILY
by Mark Ventre
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L.A. Multifamily - Signs of a Market Floor | | |
Chances are, next year we will look back and say that 2025 was the year we scraped the bottom of the market.
After three years of downward price discovery, values appear to have stabilized during the second half of the year. Over that same period, transaction activity began to pick up, suggesting buyers and sellers are starting to reach alignment again.
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Fundamentals Reset
Los Angeles absorbed a heavy wave of new apartment deliveries, particularly in Koreatown, Hollywood, West L.A., and other prime L.A. infill locations. Vacancy moved into the mid-5% range as new supply competed for tenants, stalling rent growth and, in some cases, pushing rents lower and concessions higher as operators worked to maintain occupancy.
Effective rents have softened, expectations are resetting, and lease-up timelines are lengthening. While this may appear discouraging at first glance, it reflects a normalization following an unusually aggressive development cycle, rather than a collapse.
The pressure has not been evenly distributed. Newer, Class A, amenity-heavy product absorbed most of the vacancy and concession burden, though even Class C buildings have not been immune, with rent pressure visible across much of the L.A. market.
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Pricing Finds Reality
Sales volume remains below long-term averages, but downward pricing pressure has eased as the year comes to a close. Cap rates appear to have leveled off for most product, bid-ask spreads have begun to narrow, and deals are starting to trade without the sense that every transaction requires capitulation, as buyers and sellers have adjusted to meet expectations.
Transaction activity improved meaningfully in the second half of 2025, with approximately 859 transactions in Q3 and Q4 (as of 12/15/25), compared to 771 in the first half of the year, an increase of roughly 11%. While still below normalized levels, this represents a real improvement in liquidity.
By year-end, average pricing across Los Angeles has settled into a range more reflective of today’s reality. According to CoStar, the market has traded around a 5.0% average cap rate across all multifamily asset classes over the past 12 months, with GRMs compressing in tandem. Average pricing has hovered near $268,000 per unit, while average price per square foot has generally clustered in the low-to-mid $300s, with wide dispersion depending on asset quality, vintage, upside, and submarket.
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Forces Shaping the Market
Several forces are pulling the market in different directions.
On one hand, interest rates are easing, confidence is improving, and institutional capital is returning. Historically, private capital follows. These dynamics should support increased transaction volume as we move into 2026. Looking ahead, recently enacted state legislation, including SB 79, may help improve development feasibility over time, which has become increasingly constrained in Los Angeles due to pricing and regulatory pressures.
On the other hand, affordability remains a constraint. Rents are softening, concessions are elevated, and Los Angeles continues to lag the national labor market, in part due to ongoing weakness in the entertainment industry.
Layered on top is an increasingly punitive regulatory environment. In 2025, Los Angeles implemented additional rent control reforms, including CPI-tied caps for Rent Stabilized properties, tighter allowable increases, and limitations on certain passthroughs. Upside still exists, but it is more constrained. Assumptions must be tighter, and execution must be cleaner.
Nationally, conditions are more constructive, with GDP growth and inflation contained near 3%, unemployment just over 4%, and moderate new home starts supporting long-term housing demand, even if that strength has yet to meaningfully show up at the household level.
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How This Likely Plays Out
Taken together, these dynamics point to a market where transaction volume improves as capital re-engages, while pricing is more likely to recover incrementally rather than move sharply higher. For now, pricing across much of the market appears to have stabilized, even as certain segments continue to adjust.
For owners who have been waiting for clearer footing, conditions now suggest the market has begun to move off its lows, with modest upward momentum.
While materially higher pricing may take time to develop, today’s upleg environment remains attractive for those considering a 1031 exchange.
For buyers, opportunity remains. For sellers, the window is becoming clearer. As always in Los Angeles, the right answer depends on the asset, the submarket, the rents, and the operations.
If you’d like, I’m happy to walk through how these trends apply to your situation.
Happy Holidays!
-Mark
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