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The Orange The Orange County apartment market continues to rebound. Operations have improved so far in 2013, with vacancy below equilibrium and asking rents nearly 10 percent above the low point during the recession. The healthy performance of the apartment market is a result of Orange County’s strategic location, population growth, low unemployment rate, high occupancy and shortage of available housing, which has greatly benefited multifamily investors.
According to Hendricks-Berkadia Research, the county is one of the most densely populated areas in the United States. Orange County is 2.5 times denser than Contra Costa and Santa Clara counties, and five times denser than San Diego County, which has nearly the same population. The population in Orange County has grown consistently, and reached 3,055,800 residents at the end of 2012, up 26.7 percent from 1990.
The unemployment rate for Orange County in the second quarter of 2013 averaged 5.6 percent, 130 basis point below what it was at the end of 2012. According to Moody’s Analytics, the local jobless rate is lower than state and U.S averages. This would be the lowest rate since 2008, indicative of the improving economy in Orange County. Employment growth in the county is also expected to measure close to 2 percent in 2013 and 3 percent in 2014, with more than 69,000 jobs added over the next two years.
New housing starts have historically not kept pace with job growth in Orange County. About 4,600 new rental units are needed annually, and yet only 2,000 to 2,500 units are being constructed on average each year. The need for apartments is accentuated by the region’s high housing costs and below-average housing affordability rate. The county’s housing inventory consists of an estimated 1,048,000 units, of which 40.7 percent are renter occupied.
Renting is still the preferred choice as the Generation Y tenants want to be more mobile, free and flexible. This behavior adds to the already rising renter demand and puts more pressure on the limited supply of available housing units, thus helping to increase rents.
Orange County’s overall vacancy rate, which has averaged 5 percent since 2004, is a projected 4.8 percent at the end of the second quarter of 2013, 10 basis points below the rate one year ago. Vacancy is expected to continue to tighten throughout 2013.
By midyear, countywide asking rents reached an estimated $1,715 per month. This is up 2.5 percent in the past 12 months and represents a 6.5 percent increase over the past two years. Rent growth is expected to continue as the county’s average rent is predicted to advance more than 1 percent in the second half of the year, exceeding $1,730 per month by December.
Due to the current rent and occupancy improvements taking place in this market, many buyers want to invest in Orange County apartments. Elevated and still-rising investment demand is compressing cap rates, allowing sellers to get maximum value for their apartment asset.
— Shane Shafer, senior investment advisor, Hendricks & Partners in Newport Beach, Calif.