So cal multifamily broker

Orange County’s multifamily fundamentals were a mixed bag at the close of the third quarter. Rent performance recovered after six consecutive months of declines, as the average rent rose 0.3% to $2,121, on a trailing three-month basis as of September. New-supply additions remained weak and transaction activity stalled, counterbalancing the encouraging rent performance. The occupancy rate in stabilized properties marked a 160-basis point decline to 94.2% year-over-year as of August.

More than 8.8 million unemployment claims were filed across California between mid-March and early October, and in the 12 months ending in July, all sectors registered reductions. Employment growth decreased 9.3% year-over-year as of July, faring worse than the 6.6% U.S. contraction rate. Unemployment posted a slow but steady comeback, from 14.7% in April to 12.4% in July, with preliminary data for August pointing to 9.9%. Employment is likely to take another hit following Disney’s announcement of some 28,000 layoffs across the U.S.

Development was tepid, with 907 units delivered through September and 5,872 underway. Meanwhile, transaction volume halted at $63 million in sales recorded in the first quarter, for an average per-unit price that slid 0.9% to $292,874. Accounting for these factors, we expect rents to drop 1.7% in 2020.

RENT TRENDS

➤ The average rate rose 0.3% on a trailing three month basis through September to $2,121, while the national average inched up 0.1% to $1,463 during the period. Rent growth in Orange County recorded positive numbers in September, after six consecutive months of negative performance.

➤ Bucking the national trend, the rebound was led by the upscale Lifestyle segment, where the average rose 0.5% to $2,397, on a trailing three month basis through September. That followed a 160-basis-point decline in the occupancy rate for stabilized properties year-over-year as of August, to 93.8%. Meanwhile, working class Renter-by-Necessity rents appreciated by 0.1%, reaching $1,924. The occupancy rate in stabilized properties in the RBN segment slid 170 basis points to 94.5%. RBN occupancy and demand are likely to drop further in Orange County following Disney’s announcement that it will lay off 28,000 employees.

➤ Rents were uneven across the map, with half of the submarkets registering increases and the other half marking declines. The steepest contraction was posted in South Irvine (down 5.9% to $2,433) and North Irvine (down 4.8% to $2,327), which are two of Orange County’s most expensive regions. Newport Beach, the metro’s most expensive rental market, saw rents inch down 0.1% to $2,795. Santa Ana, the submarket with the most robust development pipeline, marked a 0.3% rise to an average price of $1,965.

ECONOMIC SNAPSHOT

➤Orange County’s economy exhibited a slow recovery following the economic fallout from the pandemic. The unemployment rate dropped to 12.4% in July from the 14.7% high point registered in April. Preliminary data for August pointed to a 9.9% rate. Unemployment claims filed across the state between mid-March and October surpassed 8.8 million. The number is expected to rise locally following the county’s stagnation in its Tier 2 reopening.

➤ The failed progress in reopening was followed by Disney’s announcement that it plans to lay off some 28,000 employees across its theme parks. As the largest employer in the region, the measure will likely bear an impact. According to a study conducted by California State University, Fullerton, the Disneyland Resort generated $8.5 billion in economic activity in Southern California in 2018. Moreover, Anaheim had 25 million annual visitors, a figure which, in 2020, has been cut by at least half.

➤ Even though employment growth continued to decline–down 9.3% in the year ending in July–lagging the U.S. rate by 270 basis points, the local economy is diversified. The largest sector–professional and business services (20.8%)–shrunk by 7.7%, while leisure and hospitality lost 33% of its jobs.

Source: Yardi

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