Orange County, Calif.—According to a report released this week by real estate investment specialist Marcus & Millichap, the Orange County, Calif. apartment market seems to arrived at a point of stabilization. Some submarkets in the southern California county are experiencing a slight downward movement in vacancy rates, while others are seeing slight upticks in vacancy. In the aggregate, stability.
“Orange County apartment fundamentals will begin to stabilize this year as deliveries slow and employers add to payrolls for the first time in three years,” the report notes. “Half of the county’s 18 submarkets recorded tighter year-over-year vacancy rates through the first quarter; during the previous 12-month period, vacancy increased in all but two submarkets, with spikes of 200 basis points to 300 basis points common.”
The trickle of new product deliveries seems to be a determining factor in the relative apartment market health of various parts of Orange County. Little has been completed in such coastal places as Huntington Beach, Newport Beach and Laguna Beach/Dana Point in recent years, for example, putting those submarkets’ vacancy rates in the 4 percent to 5 percent range. Marcus & Millichap predicts that those already tight vacancies might get even tighter in the coming quarters.
By contrast, in the parts of Orange County that have seen more concentrated apartment development, especially Irvine and Anaheim, vacancy averages are now between 8 percent and 9 percent, and will probably remain high until job growth really starts in earnest.
That will be a while. According to U.S. Bureau of Labor Statistics estimates, employers in the county are estimated to add 11,000 jobs all together in 2010, or a 0.8 percent increase. But the county has lost 55,300 or so only since a year ago, and more before that.
Still, the relative expense of for-sale housing in this part of California is likely to keep rental properties as the only option for many, and thus demand will be relatively strong going forward. Despite the precipitous slide in home valuations in California since the popping of the housing bubble, the price for entry-level housing in Orange County currently stands at $413,680, according to the California Association of Realtors, which translates to a monthly mortgage payment of $2,330. That compares with the California entry-level price of $246,270 ($1,380 per month) and the national entry-level price of $141,190 ($790 per month).
The Marcus & Millichap report predicts that rents for Orange County landlords will continue to be trimmed in response to the economic softness of 2010, but not nearly as much as in 2009. Asking rents will drop 2.6 percent to $1,425 per month, while effective rents will slip 3 percent to $1,353 per month, the report notes. Last year, asking and effective rents fell 6.7 percent and 7.1 percent, respectively.