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ORANGE COUNTY, CA—Orange County's population is projected to grow 4.9% between now and 2021, reinforcing the need for more apartment units—but where will they be developed and how will rents be affected? According to recent research from JLL, Orange County's multifamily supply has grown from 66,138 units in midsize and large complexes in 2007 to a current total of 105,725 units, with continue growth expected. We spoke with the firm's EVP Darcy Miramontes about where the units will go, how land constraints are affecting growth and how additional supply will affect rental rates.
GlobeSt.com: With Orange County's population expected to grow nearly 5% in the next four years, which submarkets are expected to see the most growth in multifamily units?
Miramontes: The three that come to mind are Irvine Spectrum, Laguna Hills and Laguna Beach/Dana Point. Irvine Spectrum is growing at 3% annually, and this submarket is seeing some of the strongest growth in the US with more than 200,000 residents, more than 100 companies located there and a large employment base. QLogic, a semi-conductor company in South County, is relocating to Irvine Spectrum, taking more than 100,000 square feet.
GlobeSt.com: Are land constraints an issue for this growth? How are developers expected to overcome it?
Miramontes: Land constraints for OC are obviously geographic constraints. We have the Santa Ana Mountains to the east, Pendleton to the south, the ocean to the west and L.A. to the north. There's no other logistical constraint hampering development in the area other than the fact that it's difficult for developers to get a hold of land to develop. There are a few owners that own a lot of land in OC, but it's really opportunity costs—there are not as many opportunities as you see in other metros because there's not a lot of land to develop. They are building where they can find land opportunity, so there's a lot of regentrification of older areas and rezoning land to fit housing and what's needed today. Old Town Anaheim is a great example: old industrial uses are moving to the outskirts of town and being backfilled with new housing, retail and social services that go along with that, creating more of a community and a marketplace.
GlobeSt.com: What effect is the additional supply expected to have on rental rates?
Miramontes: There will be a minimal effect on rental rates in Orange County with the additional supply simply because it has the 15th largest economy in the US. In particular, it has a very diverse high-tech sector and the third most-diverse high-tech sector in the nation behind San Jose and San Diego, so job and population growth continue to outpace supply. The OC market is expected to fall short by 40,000 units of housing over the next five years, and the unemployment rate is expected to stabilize around 3.5% over the next three years. Right now, new jobs to new units is five to one, and it's projected to go up to seven to one, so there is a housing shortage.
GlobeSt.com: What else should our readers know about OC's multifamily supply?
Miramontes: One of the critical components I would add to the OC market is that it has very good fundamentals. Another reason rental rates will remain steady is housing prices; OC is the third least-affordable market in the US with an average price just under $700,000. OC has a really good job base and a diverse high-tech sector, and as long as employment remains strong in high-paying sectors such as high-tech, OC metro-wide demand will continue to keep pace with supply coming online. The region has a really good job and employment base, and if that continues, OC will continue to be a very strong, fundamentally sound multifamily market.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
