ORANGE COUNTY, CA-The multifamily market is warming up in balmy Orange County, CA, where record low construction levels, a high-priced housing market and steady job growth all point toward growing investment activity in 2012, according to report released by Marcus & Millichap.

“The demand is fairly stable because Orange County is coastal,” says Joe Cesca, senior manager of the firm’s Newport Beach office. Even though coastal locations are generally costly housing markets in California, the county “still has some affordable areas, along with some high-end neighborhoods,” he says. Plus, “it’s a great place to live with a nice employment base,” he adds.

Steady, if unspectacular job growth, is helping keep the local apartment market aloft, according to figures from another firm, Hendricks & Partners. Local unemployment fell 90 basis points in the Third Quarter, resulting in an 8.6% unemployment rate, which is one of the lowest in California, according to the data from the Phoenix-based apartment brokerage. Orange County employers added 13,400 jobs in the past year, roughly equally to the 2010 rate.

That strong job growth in the past year resulted helped push down vacancies rates by 110 basis points to 4.3%, according to Marcus & Millichap.

“Although a lot of our housing market has been impacted by the foreclosure crisis, it’s still very expensive, with median prices of $500,000 range,” says Cesca. “You need a two-income family to come up with mortgage payments of $2,100 to $2,700, plus insurance and all the other add-ons that come with owning a home,” he adds.

Rising demand, of course, means rising rental rates. In 2012, Orange County apartment owners can look forward to 2.4% increase in asking rents, averaging $1,510 monthly countywide, while effective rents rise 2.8% to $1,455 monthly.

The low cost of debt, however, is the largest single factor driving multifamily sales in Orange County, according to Cesta. “You can get a building here with stable rents and opportunity for rental growth at 4.5-5%, fixed for 10 years, and sometimes longer,” he says. “Those highly attractive interest rates makes Orange County a great place to park capital.”

The result, says Cesca, “is a trend of young renters moving to apartment living.”

The upward trend in pricing is having a “waterfall effect,” according to Cesca. “Class A apartments are doing well, which translates into class B doing well and even class C experiencing some rental growth,” he says. One sign of a tightening rental market is the loss of rental concessions. “A year ago, you would see things like move-in allowance and free rent,” Cesca says. “That’s all gone now.”

Although a mere 95 rental units reached completion in 2011, construction will increase sharply, especially in 2013-14, when developers who are currently buying land are able to finish construction on new rental complexes. “We are starting to see developers acquire sites, although there’s not a whole lot of vacant land available.” One exception is Tustin, where large-scale homebuilding is planned on the site of a former military base.