"Affordability constraints seem to be impacting the apartment market in Orange County," says Greg Willett, director of research products for M/PF. "The aggressive rent growth pace seen in 2000 appears to have forced some households to seek lower-priced apartments in parts of the Inland Empire or Los Angeles."
Of particular significance in M/PF's new Orange County report is the fact that net move-outs (totaling 1,300 households) between January and March of this year have pushed occupancy down to 96.7%, close to the 96.8% level seen a year ago. This number is down dramatically from the 98.2% peak seen in mid-2000.
However, not everyone in the industry is seeing the slide. Jay Skenderian, a principal at Morgan Skenderian Investment Real Estate Group in Newport Beach, a firm specializing in the sale and ownership of apartment complexes exclusively, says he has not seen any move-outs either in the buildings his firm owns or the ones it sells.
"When we sell a building we look at the rent rolls, and we're not seeing vacancies," says Skenderian, whose company sells mostly in the central and north county areas. "We're seeing a slowdown in traffic as far as renters coming to look, but we're not seeing a drop off yet. We're selling a lot of units, and every time we do a deal it's 100% occupied."
The slide in occupancy, which the research firm is reporting, has already had an effect on rent growth as well, M/PF adds. Increasing at a robust 9% on a same-store basis between the first quarter of 2000 and same period in 2001, all of this rent growth actually occurred in calendar year 2000, the report notes. Rates were virtually unchanged between the fourth quarter of last year and the first quarter of 2001.
As measured by M/PF, average rent paid for an apartment in Orange County is $1,195 per month, with Newport Beach still at the top of the range, averaging $1,620 per month, with rents charged for multifamily product built in the past decade there is averaging $2,029 per month. Anaheim remains at the low end of the spectrum averaging $914 per month.
Annual demand for apartments fell to 1,170 units for the year ending March 31, 2001, with 1,366 units completed during the same period. However, none of that new supply came online during the first quarter of 2001. Aggressive building of new units continues, with 5,000 units currently under construction at the end of the quarter, but 60% of those units are in the city of Irvine.
"This new construction notably surpasses typical deliveries during the past decade, and the fact that such a large share of the building is concentrated in a single neighborhood is not ideal," Willett says.
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