Santa Monica, long considered one of Los Angeles’ most desirable rental markets, is experiencing a surge in luxury multifamily construction that is testing the limits of local demand. The influx of new, high-end apartment buildings has prompted questions about whether the area can support both the volume of new units and the steep rents being asked.
“In Santa Monica, there are a bunch of brand new A asset class properties. Brand new hasn’t even been leased out yet,” says Joe Killinger, partner and co-founder of Commercial Brokers International. These newly completed buildings offer modern amenities and finishes, matching the profile that institutional investors typically target. However, Killinger points to the density and timing of these projects as a potential problem.
Rents in these buildings are notably high. At a Broadway and Lincoln property, Killinger notes, “the studios are over three grand, and they’re not much bigger than this, the studio I’m in, an actual studio.” Studios start at $3,000 to $4,000 per month, with one-bedroom units jumping to $4,500, two-bedrooms at $5,500, and larger units on higher floors commanding $10,000 to $20,000 per month.
What sets this situation apart is not just the price, but the volume of new supply concentrated in a small area. “There’s like five in a row there. Then you go down to Colora Broadway buildings, all brand new buildings all around there,” Killinger says. Multiple new buildings are launching at once, all targeting the same high-income tenant pool.
“I don’t see how you fill all those buildings up,” Killinger says. While Santa Monica remains a top choice for renters, he questions whether enough tenants are willing and able to pay $3,000 or more for a studio to fill several large buildings at once.
This scenario resembles what occurred in other cities that experienced rapid luxury development. In Austin, Texas, a surge in high-end apartments led to increased concessions and slower lease-ups as landlords struggled to attract enough tenants at the proposed rents. Santa Monica, however, has historically had a more limited supply, making it uncertain whether the same outcome will occur.
Killinger draws a comparison to Texas markets: “Here’s something that happens in Texas, they overbuild, and then they have this big decline, and then it all levels out, and some properties go back to the bank.” He suggests Santa Monica could be entering a similar phase, despite its traditionally strong demand.
Despite concerns about leasing pace, Killinger expects institutional investors will eventually pursue these properties. “I think you’re going to see some institutional investors, investors coming into Santa Monica and buying that stuff up once it’s filled up,” he says. Institutional capital is attracted to new, well-located assets, but typically waits for stable occupancy before committing.
“That’s what institutional investors like. They like that new shiny stuff in a great area, and Santa Monica is that,” he says. The key question is what price investors will pay, and how long it will take for buildings to reach stabilized occupancy that supports those valuations.
Killinger is uncertain where values will settle. “The numbers, I’m going to be a little surprised by what they’re going to be at. I’m not sure where they’re going to be, because they have to get that occupancy,” he explains. If lease-up is slower than projected, developers may have to offer concessions or reduce rents, which would lower valuations and returns.
This situation could create opportunities for patient institutional investors. If developers need to stabilize occupancy or refinance construction loans, they may become more flexible on pricing. “I think you’ll see some institutional investors, but I think they’re going to be very cautious about how they go in and acquire these properties,” Killinger says.
The Santa Monica case highlights a wider trend in Los Angeles multifamily investment. According to Killinger, investment sales have been “pretty slow,” as buyers and sellers wait for clarity on interest rates and new regulations. Regulatory changes following the 2025 wildfires, which introduced new rent control and tenant protections, have added uncertainty to the market.
“A lot of people have been sitting on the sidelines seeing how this is going to play out,” Killinger notes. Transactions are still occurring, but at lower volumes than before the pandemic. The question is whether the influx of new Santa Monica supply will prompt more deals as developers seek exits, or whether it will further slow investment activity as buyers wait to see how rents and occupancy stabilize.
For institutional investors evaluating Los Angeles multifamily, Santa Monica’s new developments serve as a test case. If these prime, newly built properties can achieve and maintain premium rents despite significant new supply, it would reinforce confidence in the market’s underlying strength. If they struggle with lease-up or require significant concessions, it would signal that even the most desirable submarkets have limits to absorption.
Killinger’s analysis points to an uncertain outcome. The new buildings have the features institutional investors want, but the high concentration of supply and elevated rents create risks that may delay large-scale investment until real absorption and rent levels become clear.
The next 12 to 18 months will reveal whether Santa Monica’s luxury multifamily market can support this wave of new construction at current pricing, or whether developers and investors will need to adjust expectations in the face of slower lease-ups and potentially lower rents. For now, institutional capital is watching closely – but waiting for the data to show whether Santa Monica’s fundamentals truly justify the premium.
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