Los Angeles Luxury Apartments Offer Erewhon Credits Amidst Market Slowdown

Developers of The Mercer, a new luxury apartment building in West Hollywood, are offering a $2,500 credit for Erewhon, an influencer-loved upscale grocery store, in an effort to attract tenants. The offer comes as the Los Angeles rental market experiences a softening, with rising inventory and slowing lease signings.

The Mercer features 17 units with monthly rents ranging from $6,995 for a two-bedroom apartment to $9,995 for the penthouse. The Erewhon credit represents a fraction of the monthly rent, but is designed to appeal to the demographic seeking exclusivity.

"If anyone can say, ‘I have this, you don’t,’ I think there’s that exclusivity that this world of renters is seeking, and especially the younger generation," Adam Rosenkranz, developer of The Mercer, told CoStar.

This trend of offering creative concessions is not unique to The Mercer. Data from market watcher CoStar indicates that 43% of Los Angeles apartments now offer some form of concession, up from 29% last year. Other luxury buildings are providing perks such as free memberships to high-end gyms like Equinox, Uber gift cards, or complimentary memberships to exclusive restaurants.

At 700 Broadway in Santa Monica, renters can receive a four-month Equinox membership and up to 10 weeks of free rent. The Harper in West Hollywood offers a $350 Uber gift card, while Palma Collection in Beverly Hills provides a complimentary membership to the Dorsia restaurant reservation service.

Experts note that these concessions, while seemingly generous, are primarily a strategy to stand out in a competitive market and encourage renters to choose a specific building. "If somebody puts everything into a spreadsheet, they may find that several months of free rent is worth more," said Erik Edeen, principal and senior director of U.S. investment sales at Avison Young. "But that’s not necessarily the entire point. You’re trying to create some stickiness and give somebody a reason to choose your building and stay there."

The surge in luxury apartment inventory comes as the city has added 37,000 new luxury units in the past five years, with an additional 12,000 currently under construction. This has shifted the market in favor of renters, provided they have substantial financial resources.

Nationwide, apartment construction has slowed, with about 60,000 apartments beginning construction in the third quarter of the year, a 71% decrease from the peak of the cycle and the lowest quarterly total since 2012, according to CoStar. However, the local job market in Los Angeles is a factor in the high-end rental market's challenges.

"The jobs [the region] adding aren’t necessarily the jobs that support an $8,000- or $10,000-a-month apartment," said Catherine Yeh, CoStar’s director of market analytics for Los Angeles. "That’s another challenge for the top of the market."

Edeen anticipates that the intense competition for concessions in the luxury rental market will likely diminish as the current supply is absorbed. "Things are going to get better as the supply gets absorbed. This isn’t something I would expect to continue at the same intensity indefinitely."