According to Real Facts, the $28 quarterly decrease to $1,550 a month was only the third such drop for the market in 14 years. The other declines occurred in Q1 1995 and Q4 '08. Casden, which bases its results on a broader sampling, says this quarter's decline is the first in 13 years. RealFacts surveys only apartment complexes with at least 90 units, while Casden includes smaller properties as well. Pierce-Eislen looks at all complexes with more than 50 units.
All three sources attribute the decline in rent to rising vacancy levels caused by rising unemployment levels. "There's a near one to one relationship between job loss and rent decline," observes Pierce-Eislen CEO Ron Brock Sr. What's most notable about the slippage, he adds, is that the biggest rent declines have been occurring at the top end of the market. "It's the class A and A-plus properties that have been affected the most," he notes.
While Brock's Q1 data shows less of a drop than other sources, he says April figures may bring results from the three research companies more into line. The most recent Pierce-Eislen data shows the average rent has fallen 1.8% since March 31. All sources expect the decline to continue through the end of the year.
RealFacts CEO Caroline Latham says the Orange County rent decline is above the national average of about 2%, but she believes that's largely because rent levels there are higher to begin with. "It's not really about local conditions," she points out. "It's about national conditions, the national unemployment rate. That's what's behind what's happening in Orange County, as it is behind nearly everywhere else." What perhaps puts more pressure on rents in Southern California, she continues, is a larger percentage of younger people, who are generally more flexible about giving up their own places and sharing with friends or family.
RealFacts estimates the average Orange County occupancy level at 7.7%, but John Nguyen, a senior vice president of investments in the Newport Beach office of Marcus & Millichap Real Estate Investment Services, suspects the figure would be a couple points higher if landlords were not offering substantial concessions to get spaces leased. "Everyone's giving concessions, at least one month's free rent." he tells GlobeSt.com. "One building I know is offering two weeks free rent, a 42-inch plasma TV and no lease requirement. Things are getting weird out there."
On the investment front, Nguyen says few properties are selling, though there are a fair number on the market. "A lot of agents haven't got the sellers' expectations to come down to reality," he remarks. "They're trailing three to six months on prices. But when you hear noting but bad news, buyers don't want to go out on a limb and pay what may be too high a price. The capital is there, but the pricing isn't."
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