By Eric Chen, Senior Vice President, CBRE
Multifamily has been a well-performing real estate segment during the past 18 months as demand for housing continues to trump supply in most of California. The Inland Empire has been the recipient of much of this demand within the Greater Los Angeles and Southern California regions due to their economic and population growth. Tenants are also in search of more affordable, quality dwellings outside the urban core.
Due to the confluence of these factors, multifamily vacancies in the area are at an all-time low of less than 5 percent. This is exasperated by the fact that new developments are at the lowest level across the nation, pushing rent growth to No. 1. This dynamic is, of course, ideal for investors who seek stable, income-producing investments with potential upside and little risk of oversupply. We do expect additional apartment properties to be built in the coming year or two, which will create more investment opportunities and provide more options for tenants who are new to the region or relocating from within.
Looking back on this year, we have seen a number of large institutional-sized transactions between $25 million and $100 million, with investors ranging from private equity funds to fund managers. We expect more of that in 2022, but with private buyers likely to take the lead. Some of our team’s significant transactions in 2021 included the sale of 32 units in Riverside during the first quarter of this year, as well as the sale of a seven-property regional portfolio. We are currently in escrow for 75 units in Ontario for $29 million, with an expected close in December.
While the Inland Empire has received a lot of attention from renters and investors alike, certain areas are particularly desirable. This includes Ontario, which has developed into a thriving ecommerce hub. Riverside is also a very sought-after market due to its fast-growing population size, with many of its younger residents opting to rent an apartment before buying their first home. Other areas that are starting to grab investors’ attention include Fontana, Redlands, and even Yucaipa and Menifee as these areas are working hard to add attractive amenities, such as shopping centers.
Looking ahead, we believe the Inland Empire will hold its No. 1 spot as the top multifamily growth market in terms of sales volume and rents, which are expected to rise 8 percent in the first quarter of 2022.
As 2021 is slowly coming to an end, we look back on a year of continued uncertainty. Yet, despite the continued challenges, the Inland Empire multifamily market continues to thrive. Given the convergence of the favorable factors in the region — population growth, industrial expansion, a growing amenities base and relatively lower rents when compared to the coastal areas — we expect the region’s apartment segment to continue to thrive in the foreseeable future.