Southern California is one of the country’s hot spots for apartment rent growth. Effective pricing for new resident leases is up a whopping 8.9% year-over-year in metro Riverside/San Bernardino, and annual growth is hitting roughly 6% to 7% in Los Angeles, Orange County, Ventura County and San Diego.
Middle-Tier Neighborhoods Exhibit Momentum
Among the 66 individual submarkets that MPF Research has defined within the Southern California metros, annual rent growth tops 9% in a dozen spots. Leading the way, yearly pricing power is at 12.7% in Vista/San Marcos, an inland neighborhood in the northern portion of metro San Diego.
Vista/San Marcos is typical of the submarkets on the rent growth leaderboard in several ways. For example, this is a bread-and-butter sort of spot with lots of Class B apartments, rather than a really high-end, on-the-water sort of location.
Indeed, among the neighborhoods experiencing the most aggressive rent growth, the Mid-Wilshire area of metro Los Angeles is the only one that commands total monthly rents toward the high end of the regional norm. Furthermore, the Mid-Wilshire submarket hasn’t been a consistent performer of late. Annual rent growth has bounced around more than in most of the region’s submarkets, over the last couple of years ranging between 3.5% and the 11.3% high being seen currently.
Building Volume Plays a Role in Performance
Looking beyond neighborhood characteristics, construction tallies appear to be shaping rent growth levels in the Southern California region. None of the submarkets where pricing is moving most aggressively added enough new supply during the past year to slow rent growth in the top-tier product niche. In fact, half of the neighborhoods performing best didn’t add a single unit in the past four quarters.
These same submarkets, in turn, generally appear positioned to remain outperformers in the near term, as most still don’t have much future supply on the way. The Mid-Wilshire area again is the exception. There, ongoing construction tops 3,000 units, one of the more substantial volumes in any Southern California region neighborhood.
Where’s Orange County on the List?
While the neighborhood-level rent growth leaderboard for Southern California features six submarkets in the Inland Empire, four in Los Angeles and one apiece in San Diego and Ventura County, no Orange County submarkets make the cut.
Orange County’s average annual rent growth of 6.3% is right in line with the numbers for Los Angeles, Ventura County and San Diego. Instead of a mix of highs and lows in performance by neighborhood, Orange County’s submarket-level results are simply registering more uniformly near the metro norm. Top neighborhood-level achievers posting annual rent growth right at the 8% mark in Orange County are North Orange County, West Anaheim and Mission Viejo/Lake Forest.
As has been seen elsewhere in Southern California, construction patterns look like an influence on Orange County’s rent growth results. This metro generally has experienced more significant building than other areas of the region throughout the current economic cycle. And, the new additions have come on stream in a more diverse array of Orange County’s submarkets than was typical in previous periods.