— By Mark Bridge, Managing Director, Bridge Multifamily Team, Capital Markets, Americas, Cushman & Wakefield —
Vacancy
The vacancy rate is 4.0 percent as of the mid-point in the second quarter of 2024, up 30 basis points (bps) quarter-over-quarter (QOQ) and year-over-year (YOY). The rate has been increasing in eight out of the last 11 quarters from a market low of 2.1 percent in third quarter 2021. The rate is currently 40 bps above the five-year quarterly average of 3.6 percent. Despite this recent increase, Orange County’s vacancy rate is considerably lower than the national average at 7.7 percent. OC’s vacancy rate ranks it second lowest among the nation’s 50 largest markets.
Rent
The average asking rent per unit currently sits at $2,513 as of the mid-point in the second quarter of 2024. The market high asking rent per unit peaked in fourth 2023 at $2,530 and has come down 0.7 percent since then. Despite the recent decrease, the asking rent per unit is still up 0.9 percent YOY. Given the tightness of the market and a healthy development pipeline, it is likely that the asking rent will remain elevated.
Construction/Deliveries
There are currently 23 buildings or 8,183 units under construction in the OC multifamily apartment market as of the mid-point in the second quarter of 2024. This figure equates to 2.6 percent of the inventory base under construction, which is a level not seen since first quarter 2019. Thus far in the year, seven buildings (812 units) have been delivered to the market. The largest was Acadia at 5155 Katella Ave. in Cypress, which delivered 251 units in March. Given that California is in a major housing shortage, developers can and likely will continue to keep the development pipeline loaded.
Absorption
The OC multifamily market has recorded -281 units of negative absorption in 2024 year-to-date (YTD), with a large portion stemming from the newly built product. The market is cooling slightly after a strong 2023 where 2,887 units were absorbed, which far exceeded the occupancy losses that were seen in 2022. This recovery in demand can be attributed to increased “in-office” work demands requiring employees to be closer to work, a plethora of employment opportunities, increased international immigration, and an ideal geographic location and climate.
Sales
The OC multifamily market has recorded over $131 million in sales volume (four properties) as of the mid-point in the second quarter of 2024, compared to $395 million (15 properties) in first quarter 2024 and $213 million (16 properties) in second 2023. This represents a decrease in volume of 66.8 percent QOQ and 38.5 percent YOY. The leading buyers in 2024 YTD are private investors at 78.9 percent (vs. 64.8 percent in 2023), followed by REITs at 21.1 percent (vs. 0 percent in 2023). Private investors account for most of the sales activity thus far in 2024 at 47.8 percent (vs. 58.4 percent in 2023), followed by institutional investors at 27.7 percent (vs. 8.5 percent in 2023), and REITs at 24.5 percent (vs. 33.1 percent in 2023). A notable sale in January 2024 was the Regency Palms Apartments located at 6762 Warner Ave. in Huntington Beach, which sold for $127 million or $409,677 per unit.