While all three Greater Los Angeles-area apartment markets tend to register occupancy and rent growth ahead of national averages, Orange County broke away from the pack recently, with rent growth falling below the U.S. norm.
Pricing performance has slowed in Orange County as job growth contracted recently. This market already faced headwinds from several years of elevated new supply volumes, and the added pressure of a slowing job growth weighed on operator confidence. Year-over-year, rent growth was at just 1.8% in early 2019, one of the softest increases the market has seen in almost a decade.
Elsewhere in the Greater Los Angeles area, however, rents are still rising ahead of national averages. Prices were up by 4.9% in the Inland Empire and by 3.6% in the Los Angeles metro in 1st quarter 2019. In fact, when compared to all the other California markets, the Anaheim-Santa Ana-Irvine market was at the bottom of the rent growth list. Oakland was the second-worst performer with price increases of 2.9%.
Nationwide, rents rose 3.3% in the year-ending 1st quarter 2019.
Some of what is holding rent growth back in Anaheim right now is affordability. Monthly rents here average at $2,081, one of the highest among the country’s 50 largest apartment markets. Among the three L.A.-area markets, Orange County has the most expensive Class C units, providing affordability challenges for households at the lowest end of the income spectrum. Monthly rents in the Class C product line here average at $1,659, about $200 over prices for Class C stock in Los Angeles and Riverside-San Bernardino.
Despite pricey product and stunted rent growth, Orange County has remained a consistent occupancy performer. Occupancy here was at 95.9% in early 2019, right in line with what has been the norm for this market for the past five years. In fact, occupancy hasn’t strayed more than 30 basis points (bps) from the current figure since 2014, which was the most recent performance peak for Anaheim.
While occupancy has been consistently strong in Orange County, other L.A.-area markets are logging a performance premium. Early 2019 occupancy in Los Angeles was at 96.3%, while the showing was at 96.1% in the Inland Empire.
The expensive prices seen in the Orange County’s Class C units are not turning off renters. In fact, the Class C product line has seen a lot of occupancy progress and was at a very tight 97.6% in 1st quarter 2019. That is one of the strongest showings nationally among lower-priced apartments, and is likely due in part to the Class B stock going beyond the affordability threshold for some residents.
Looking ahead, Orange County’s elevated new supply volumes are expected to continue in the near term. The softening already seen in the market is expected to continue just a bit, as the pressure from five consecutive years of sizable completions weighs on performance. Rent growth should remain below the national average at around the 3% mark in the near term, while occupancy is expected to lose some of its consistently, falling a few ticks below 96%. One thing to watch here is the economic performance. If the sharp downturn seen in 2018 repeats itself in 2019, operators may adjust strategies to mitigate losses of their own.
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