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In Los Angeles, Apartment Submarket Performance Aligns With STEM Job Concentration

In Los Angeles, Apartment Submarket Performance Aligns With STEM Job Concentration

Los Angeles continues to be considered a global economic center, though the drivers of future growth remain in question. In an earlier post on Los Angeles’ economy, MPF Research identified specific employment segments that are expected to flourish in the future, specifically within Leisure/Hospitality Services and Education/Health Services. By and large, those employment segments are in lower-paying areas of the economy, which raises concerns about Los Angeles’ economic performance through 2020 and beyond. For the apartment market, this scenario fuels questions around affordability for the lower-end of the market. Compounding the issue, new supply is only meeting demand with Class A product, leaving the broader apartment market underserved.

On the flipside, other questions remain: where are areas of current opportunity within Los Angeles? That is, where are higher-paying jobs, particularly those that fall within Science, Technology, Education and Math (STEM) fields, located? Concentrations of employment within these disciplines are strong indicators of economic competitiveness, robust drivers for economic growth and creators of household wealth. Given Los Angeles’ massive and diverse economy, it is among top metros with a high concentration of STEM jobs. Based on a broad composite of Computer/Engineering/Science, Architecture/Engineering, Life/Physical/Social Science and Healthcare Practitioners/Technical occupational data per the Census Bureau, the map below drills down where STEM jobs are concentrated in Los Angeles zip codes.

Apartment Market Data

Across the metro, the percentage of STEM occupations ranges from none, in parts of Mid-Wilshire, Santa Clarita Valley and Northridge/Northwest San Fernando Valley, to over a quarter share of occupations in South Los Angeles. For the metro overall, the city maintains an average of roughly 10% of occupations that are within STEM specializations. Visually, most of these occupations fall outside the urban core and are more concentrated from Long Beach, hugging the coastline through Redondo Beach to Santa Monica. In these areas, there are several healthcare facilities and firms that serve the industrial and manufacturing segments through aviation and defense. In fact, Lockheed Martin, Boeing, Raytheon and SpaceX all have a presence in this area, with proximity to LAX. Further inland, there are pockets east from the urban core in South Los Angeles and South San Gabriel Valley. Finally, to the west of downtown, STEM jobs are greater in the San Fernando Valley – these are largely driven by the entertainment industry.

Aggregating to MPF Research submarkets, the same narrative follows. The top three submarkets for STEM job concentration are Santa Monica/Marina Del Ray (14.3%), South Bay (13.4%) and Palms/Mar Vista (12.8%). Meanwhile, Downtown Los Angeles ranked last (3.8%). While Downtown Los Angeles does maintain greater household incomes, these are likely driven by Professional/Business Services.

Looking at the multifamily market for the last five years, occupancy has been consistently tight, ranging between 96% and 98% (with the exception of Antelope Valley). The structural cause is largely due to the lack of new multifamily housing in the metro. Downtown Los Angeles, the lowest ranked in terms of STEM job concentration, has been weighed down by greater construction activity, growing inventory an average of 2.6% over the last five years. In terms of rent growth, Palms/Mar Vista (6.2%), Van Nuys/Northeast San Fernando Valley (5.5%) and Sherman Oaks/North Hollywood/Encino (5.2%) round out the best submarkets during that period. Generally, submarkets with greater STEM occupations trace those with greater rent growth. Construction delays have limited the pace of completions, allowing operators to maintain greater rent growth – though rent growth is expected to moderate as new supply mounts.

Los Angeles remains to be an influential global center that consulting firm A.T. Kearny has ranked #6 out of 25 in the Global Cities Index (though it was ranked in the bottom five for economic outlook). While jobs are only directionally related to multifamily performance, understanding the location of higher-paying, economy-sustaining jobs within a metro is crucial in evaluating where new multifamily supply is entering the market and how existing multifamily product is performing.

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