Cap rates are the single most important number in multifamily valuation. They determine what your income is worth to a buyer. When cap rates expand, your value drops even if your rent roll stays the same. When they compress, the opposite happens. Right now in Los Angeles, cap rates have expanded significantly from their 2021 lows and are sitting at a level that many owners have not fully priced into their expectations.

In this guide I will give you the real, verified Q1 2026 numbers by submarket, walk you through the exact calculation, and explain what the RSO amendment that took effect this year means for how buyers are underwriting your building’s income.

If you want to know what your specific building is worth right now based on today’s cap rates, request a free property valuation before you read another market report.

• The LA metro cap rate is 5.1% as of Q1 2026, per Matthews Real Estate Investment Services citing CoStar data, with $1.4B in quarterly sales volume and average pricing of $350K per unit.
• A separate Q4 2025 dataset from Matthews and Favia Investment Group puts the metro average at 5.0% to 5.7%, depending on asset class and submarket. Cap rate expansion of approximately 60 basis points occurred year-over-year.
• Prime Westside (Beverly Hills, Santa Monica, Brentwood) is trading at 4.7% to 5.5%. Mid-market neighborhoods (Hollywood, Koreatown, Northeast LA) run 5.0% to 6.5%. Higher-yield submarkets (South LA, Westlake, DTLA) sit at 5.5% to 7.5%+.
• Cap rates are stable but not compressing. Matthews confirmed in their Q1 2026 report that “cap rate expansion is largely complete,” but a meaningful recovery in values is expected to be gradual, with prior peak pricing unlikely to return until 2029 or later.
• The July 1, 2026 RSO amendment permanently cuts the maximum allowable annual rent increase from 8% to 4% for approximately 650,000 rent-stabilized units. Buyers are already pricing a narrower NOI growth runway into their offers.
• Rent growth in LA is 0% as of Q1 2026, per Matthews/CoStar. In some Westside submarkets, rents are actively declining.
• The 2% rule does not apply in LA. Monthly rents rarely reach 0.5% to 0.7% of purchase price here. Cap rate and NOI are the only frameworks that matter in this market.

Source: Mathews Los Angeles, CA Multifamily Market Report Q1 2026

What Is the Average Cap Rate for Apartment Buildings in Los Angeles in 2026?

The verified LA metro average cap rate as of Q1 2026 is 5.1%, per Matthews Real Estate Investment Services (sourced from CoStar), with per-unit pricing averaging $350,000 and quarterly sales volume of $1.4 billion.

A separate Q4 2025 dataset cited by Favia Investment Group puts the metro average at 5.7%, up 60 basis points year-over-year. The difference between these two figures reflects methodology and timing: the 5.1% figure represents Q1 2026 closed transactions, while the 5.7% figure represents the Q4 2025 trailing average with Q1 2026 trend commentary layered in.

Both data points confirm the same direction: cap rates expanded materially from the 3.5% to 4.0% levels seen at the 2021 market peak, and they have not recovered.

Here is the verified submarket breakdown based on Q4 2025 and Q1 2026 closed transaction data:

Submarket	Cap Rate Range (Q1 2026)	Key Notes
Westside (Beverly Hills, Santa Monica, Brentwood)	4.7% to 5.5%	Lowest caps in the city. Value-add trades at 4.25% to 4.75% on current NOI; stabilized assets at 5.25% to 6.0%. Rents declining: Santa Monica down 7.5% YoY as of March 2026.
West Hollywood, South Bay, Pasadena, Glendale	4.75% to 5.75%	Premium stabilized assets. Minimal new supply pipeline. GRMs hover at 12x to 15x.
Hollywood, Northeast LA, Silver Lake, Echo Park	5.0% to 6.0%	Most active mid-market segment. High RSO coverage complicates underwriting with the new 4% annual increase cap starting July 2026.
Koreatown, Mid-City, Palms	5.0% to 6.5%	High density, stable occupancy. Asking rents flat metro-wide at approximately $2,292/unit. Mid-tier 10+ unit assets anchor this range.
South LA, San Fernando Valley (select), Westlake	5.5% to 7.5%	Higher yields reflect operational complexity, older building stock, and tenant credit risk. Concessions elevated in the Valley.
DTLA	6.0% to 6.5%+	Concessions heavy due to high Class A inventory. Construction starts down 14% YoY, limiting future oversupply risk.

Sources: Matthews Real Estate Investment Services, LA Multifamily Q1 2026 | Favia Investment Group, LA Multifamily Cap Rates 2026 | CBRE, Los Angeles Multifamily Figures Q1 2026 | Kingside Investment Group | Kidder Mathews Q1 2026

How Do I Calculate the Cap Rate on My LA Apartment Building?

Cap rate = Net Operating Income (NOI) divided by the property’s sale price or market value. The result tells you the income yield a buyer is purchasing.

Here is a worked example using a 10-unit building in Hollywood:

Step 1: Gross Scheduled Income 10 units averaging $1,900/month = $228,000/year

Step 2: Subtract Vacancy at 5% $228,000 x 0.95 = $216,600 Effective Gross Income

Step 3: Subtract Operating Expenses (38% of EGI) Property taxes, insurance, maintenance, management, utilities $216,600 x 0.38 = $82,308

Step 4: NOI $216,600 minus $82,308 = $134,292

Step 5: Apply Market Cap Rate At 5.0% (Hollywood mid-market): $134,292 / 0.05 = $2,685,840 At 5.5%: $134,292 / 0.055 = $2,441,672

That 50-basis-point shift costs the seller $244,168 in value with zero change in the income. That is why cap rate direction matters as much as the rate itself.

The formula also works in reverse. If you know what comparable buildings are selling for, you can divide their NOI by the sale price to determine what cap rate the market is applying in your submarket. 

Walk through the full underwriting framework for LA apartment buildings in this multifamily investment analysis guide.

Related Source: Measure ULA Transfer Tax

Are Cap Rates Going Up or Down in Los Angeles?

Cap rates expanded approximately 60 basis points year-over-year through Q4 2025 and have stabilized in Q1 2026 at 5.1% metro average. They are not compressing yet.

Per the Matthews Q1 2026 report, market sentiment suggests “pricing has bottomed, with cap rate expansion largely complete.” However, the same report projects that “a meaningful recovery in values is expected to be gradual, with prior peak pricing levels unlikely to return until 2029 or later.”

Property Listing: Apartment Buildings for Sale in Los Angeles

Three forces are keeping cap rates elevated right now, all confirmed by current data:

Rents Are Flat To Declining

Rent growth across the LA metro was 0% in Q1 2026 per Matthews/CoStar. In Santa Monica specifically, median rents fell 7.5% year-over-year as of March 2026, the steepest annual decline among 27 LA metro cities tracked, per Favia Investment Group citing Apartments.com data. When income is not growing, buyers discount for it.

Supply Is Elevated

Approximately 19,400 units are currently under construction in Los Angeles, per Matthews/CoStar Q1 2026 data. Deliveries in Q1 2026 alone totaled 2,300 units, outpacing the 1,100 units absorbed. That imbalance is concentrated in Class A product but creates concession pressure that flows down to mid-tier rents over time.

Related Source: Multifamily Construction Loan Rates Los Angeles 2026

Rate Cuts Did Not Compress Caps

The Federal Reserve cut rates from 5.25% down to approximately 3.5% to 3.75% through 2024 and 2025. LA multifamily cap rates expanded anyway. Local regulatory risk, rising insurance costs, and flat rent growth absorbed the benefit before it reached buyers’ return requirements.

What the July 1, 2026 RSO Change Does to Your Building’s Value

If your building was built before October 1, 1978 and is located within the City of Los Angeles, the new RSO formula effective July 1, 2026 permanently reduces the maximum annual rent increase from 8% to 4%. Buyers are already pricing this into their offers.

This is the most significant regulatory change to affect LA apartment building valuation in 40 years.

On November 12, 2025, the Los Angeles City Council voted 12 to 2 to overhaul the RSO for the first time since the 1980s. Final approval came on December 12, 2025. Mayor Bass signed the ordinance on December 23, 2025. Per the Apartment Association of Greater Los Angeles, the key changes effective July 1, 2026 are:

• Annual rent increases calculated at 90% of CPI (down from 100%)
• Maximum increase capped at 4% (down from 8%)
• Minimum floor set at 1% (down from 3%)
• Utility adders of 1% to 2% eliminated entirely
• Dependent occupant increases eliminated entirely

This applies to approximately 650,000 rental units in the City of Los Angeles, roughly 74% of the city’s multifamily rental housing stock, per LA Building Inspections and confirmed by LA City Council District 9.

Related Source: How the RSO Change Affects Your Cap Rate

The current allowable RSO increase from June 1, 2025 through June 30, 2026 is 3%, for increases where prior notice was not served. The new formula activates July 1, 2026.You can also browse current Los Angeles apartment buildings for sale to see what the market looks like from the buyer side.

Looking For Real-Time Underwriting Guidance?

My name is Max Berger. I am a Los Angeles multifamily specialist at Compass with over a decade of experience and more than 75 transactions across the city.

I do not give cap rate advice based on national averages or broad trend reports. I give it based on what is actually closing in your specific submarket, what buyers are underwriting right now, and what your building’s rent roll and RSO status mean for your asking price.

If you own an apartment building in Los Angeles and you want to know exactly what cap rate the market is applying to your asset today, call me or reach out directly. I will run the numbers for you, no sales pitch, no obligation.
Related Source: Is Now a Good Time to Sell Your Apartment Building