Orange County’s multifamily housing market remained exceptionally strong throughout 2019. The average asking rent closed the quarter at $2,055 per unit, up 3.3 percent from the fourth quarter of 2018. This was the highest asking rent on record, up 34.5 percent from the prior peak reached in the third quarter of 2008. The Central submarket saw the largest year-over-year rental rate increase, with the asking rent there rising 3.8 percent to $1,920 per unit. This quarter, the Irvine submarket also saw its average asking rent adjust a bit, down 0.7 percent from the prior quarter to $2,446 per unit as existing inventory competed with new construction added to the market. However, the average rent in Irvine is up 3.2 percent from last year.
Completed construction has pushed vacancy up. The total vacancy rate in Orange County this quarter registered 4.8 percent, up 30 basis points from the prior quarter, steady from the fourth quarter of 2018. Four significant projects totaling 2,567 units were completed this quarter. This includes Promenade at Irvine Spectrum with 1,781 units; SkyLoft, a 388-unit development in Irvine; the Charlie Orange County, a 228-unit complex in Santa Ana; and the Murphy, a 170-unit complex in Irvine.
Annual sales volume totaled $1.3 billion with 8,549 units sold, which represented an increase of 17 percent on a per-unit basis and a drop of 36.1 percent on a dollar volume basis from last year. Cap rates averaged 4.4 percent this quarter, steady over the prior quarter, up a slight 40 basis points from the fourth quarter of 2018.
The Orange County multifamily housing market remains poised for continued growth in 2020. Demand in the rental housing market is expected to remain high due to the region’s steady population and employment growth. Orange County has continued to witness the lowest unemployment rate in Southern California, which registered at 2.5 percent in November 2019, below California’s rate at 3.7 percent. With vacancy remaining very low, steady demand will continue to drive asking rent higher.
About 5,035 units remained under construction as of the fourth quarter of 2019. New supply will continue to be added to the market, with an additional 14,606 units of proposed construction scheduled to be completed by 2024. Due to the strong underlying market fundamentals, completed construction is expected to have a minimal impact on the vacancy rate and will serve to keep pricing elevated in 2020.
— By Steve Heri, senior vice president, NAI Capital, This article first appeared in the February 2020 issue of Western Real Estate Business magazine.