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Wednesday, Feb 21, 2024

OC Multifamily Rents Outpace Much of Western Region

Local Rents Up 18%; Supply Issues Grow

If it seems like apartment rent increases in Orange County are outpacing much of the rest of the state, that’s because they are.

The region saw rental rates surge nearly 18% in the first quarter of 2022 over the same period last year, the second largest jump in the Pacific region, according to a CBRE Group Inc. report released earlier this month.

Average rents in OC now hover around $2,600 per month, according to the commercial brokerage.

The 17.7% jump trailed just one other market in the region—which includes the Pacific Northwest and Hawaii—San Diego, which saw rents rise 18.4% year-over-year.

“The Orange County, Inland Empire and San Diego markets command the most attention due to job growth in the life sciences industries, warehousing, distribution and logistics centers, and outpaced rent growth,” said Dean Zander, executive vice president in CBRE’s Los Angeles office.

First-quarter rents were above pre-pandemic levels in all but two markets: San Jose and San Francisco, down 6.2% and 10%, respectively.

Lack of Supply

The main factor contributing to OC rent gains is a lack of new supply, according to Dan Blackwell, an executive vice president in CBRE’s Newport Beach office.

As the county’s land supply diminishes, multifamily investors are competing with industrial developers for new development opportunities, such as office conversions.

Bolstered by even greater rental increases and the booming e-commerce and logistics sector, industrial players have more spending power, and beat out multifamily buyers when it comes to these deals.

As for investment opportunities for existing product, the options for what renters want—new, Class A projects—are few and far between, Blackwell notes.

“Buyer demand has not let up,” he said.

Investment Focus

Nationwide investment in the multifamily sector jumped 56% year-over-year to $63 billion in the first quarter, the strongest first quarter on record, according to CBRE.

“With continued strong rent growth throughout every Southern California market, ranging from 14%-18% year-over-year, investors are drawn to multifamily opportunities, despite interest rate pressure,” Zander said.

Multifamily accounted for 37% of total commercial real estate investment volume in the first quarter of 2022, followed by office at 21% and industrial at 20%.

The office sector “is still getting figured out” locally, according to CBRE Executive Vice President of Capital Markets Anthony DeLorenzo, as vacancy rates struggle to return to pre-pandemic levels.

Industrial rents, while not seeing the breakneck increases seen last year, are still on the rise, ending the first quarter up 22% year-over-year to $1.33 per square foot.

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