The multifamily market continues to be the strongest performing real estate market in Orange County. With the support of strong fundamentals and forecasts, investors are flocking to multifamily investments, especially properties located in core cities. As the for-sale residential market remains uncertain, much of the Orange County population is choosing to lease, which has been a big driver following the economic recession.
The vacancy rate stands at 4.5 percent, which accounts for a 20 basis point drop from the previous quarter’s rate of 4.7 percent and a 140 basis point decline from the 5.9 percent recorded one year earlier. This was the third consecutive quarter that witnessed a decline in vacancy. These rates haven’t been this low since the second quarter of 2008. Although vacancy has dropped considerably since it peaked of 6.4 percent during the third quarter of 2009 through the second quarter of 2010, it remains higher than the low point of 3.2 percent, which occurred in the third quarter of 2007.
Rental rates have also increased as vacancies have filled. The average effective monthly rent is $1,488, which represents a slight increase from the $1,478 recorded during the previous quarter and an even bigger increase from the $1,455 recorded one year ago. Despite the improvement, this is far from the peak of $1,528 recorded in the third quarter of 2008. During 2009 and 2010, landlords offered concessions like free rent to new tenants in order to entice them to sign leases. However, with the decline in vacancy, concessions have become severely limited in the marketplace.
Multifamily investment activity in Orange County was strong during 2011. In 2011, there were 18 transactions of 50+ units for a total sales volume of $766 million ($177,906 per unit). Avalon Bay Communities, Western National Group and Clarion Partners are several companies that made significant Orange County multifamily investments during the year. Although we have seen a slight decline in the total volume of large multifamily investments from 2010, it is not due to a lack of interest. Instead, it’s the result of a small supply of available core properties.
With market fundamentals improving, many landlords are electing to hold their properties unless they are blown away by an offer. However, sale prices are expected to increase in 2012 as vacancy rates continue to decline while rents remain on the rise. By far, the multifamily market has rebounded quicker than other property types since the recession.
– Jared Dienstag, regional research analyst, Colliers’ Irvine, Calif., office