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Fewer Sales, Higher Prices Show Hot Apartment Market

Sellers took firm control in 1998. Grubb & Ellis execs say population growth is aggravating the shortage of inventory.


According to Casper's analysis, properties selling for less than $500,000 accounted for 709 deals, or 43.1% of the transactions last year in Los Angeles County, while sales in the $500,000 to $1.5-million range accounted for 43.9% of the transactions.

Those two categories combined accounted for nearly half of the dollar volume of sales; if transactions in the $1.5-million to $5-million range are added, the three categories combine for more than 97% of the transactions and 72% of the dollar volume.

In Orange County, by contrast, larger deals produced most of the dollar volume in 1998, 67.4% of the $725-million total. Smaller deals accounted for the largest number of transactions, 49% of the 259 sales.

Furniss said more large deals occurred in Orange County because more large apartment complexes have been built there in recent years and the county has more land on which to build than Los Angeles County.

Even with the construction of a few large complexes in Orange County, however, Furniss and Casper say Southern California is falling woefully short of building the new apartments the region needs for its swelling population.

The problem is compounded by aging buildings that are due to be replaced soon, they said.

"Given that over 641,000 units [in Los Angeles County] are a minimum of 18 years of age and 225,000 units are more than 28 years old, a strong argument can be made for replacement development, which is unrelated to construction needed to satisfy normal growth," they said in their recent newsletter.

Casper said L.A. County will continue to suffer from a 'tremendous imbalance" between supply and demand caused by population growth and a lack of new building because of high land and construction costs.

"The big story, the long-term story, is the disparity between supply and demand. Only about 5,000 new units are in the pipeline over the next 24 months, and yet the need, according to our analysis, is for 60,000 rental units over the next four or five years in L.A. County," Casper said.

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