The declining job market continues to take a toll on the Orange County multifamily sector. With unemployment reaching 9.6 percent in August, the market is showing little signs of life. Relief will not come until new jobs are created and the unemployment level begins to descend.
Orange County’s apartment vacancy increased 36 percent during the 12 months following second quarter 2008, from 4.5 to 6.1 percent. Asking rents fell 1.9 percent since second quarter 2008, from $1,566 to $1,537, while effective rents during the same time frame decreased at a higher rate of 3.6 percent from $1,519 to $1,465. Despite the downturn in rental rates, tenants are vacating the apartment market in search of less expensive housing. Orange County residents are moving in with their parents, taking in roommates or seeking respite in neighboring markets or even out of state.
Rising vacancies have led to a decline in values by more than 20 percent since 2007. According to CoStar’s year-to-date numbers, the average price per unit for buildings with 16 or more units is $129,704 with average cap rates at 7.83 percent, compared to 2007, when the average price per unit was $179,260 with average cap rates at 4.43 percent. Lower values and higher cap rates present an opportunity for private investors, but most are holding out in anticipation of more bank-owned commercial properties hitting the market.
With investors sitting on the sidelines, the Orange County market will remain flat through the end of this year. High vacancy linked to the county’s staggering unemployment rate is a major contributing factor. Apartment rents historically trail the improving job market by 16 to 18 months. Not until well after unemployment shows signs of recovery will the multifamily market begin to rebound.
— Pat Swanson is a vice president in Colliers International’s Irvine, California, office.