Opportunities in Orange County’s Multifamily Market
About Orange County
Orange County attracts a diverse spectrum of national and local investors. The solid job market and population growth both contribute to its reputation for high-quality living. Unemployment rate is around 4%, trending below the California state average. Population growth stands at around 0.4% and is expected to steady in the next four years. This dynamic is driving demand for more rental accommodations, increasing rental rates and occupancy levels.
Orange County is observing a modest improvement in move-in affordability, with average annual rent costs currently at 29% of median household income, down from a peak of 30% in mid-2022. While this improvement is only small, it is facilitated by increasing incomes, creating room for potential rent increases in 2024, maintaining enhanced affordability.
Orange County Economy
In Orange County’s dynamic job market, professional services like legal, accounting, and IT, along with commercial enterprises and leisure and hospitality industries, have the highest job location quotient (1.3). The job location quotient indicates a higher concentration of employment compared to the national average. The job location quotient indicates there’s a higher concentration of employment within these industries compared to the national average. The strong job market and higher-than-average income level within these professions further emphasizes the need for quality housing in Orange County.
The Walt Disney Company is Orange County’s largest employer, with a workforce surpassing 35,000 local employees. Disney engaged in discussions about DisneylandForward with Anaheim leaders in May 2023. DisneylandForward is a 30-year expansion initiative first introduced in 2021. This plan anticipates creating over 4,000 jobs and generating $1.1 billion in economic output during a four-year construction period, followed by nearly 2,300 jobs and $253 million in annual economic output after construction has been completed, according to CoStar Group. The expansion necessitates rezoning the resort as mixed-use, enabling Disney to offer visitors a comprehensive experience encompassing attractions, hotels, restaurants, and retail outlets.
Following Disney, the University of California, Irvine (UCI) ranks as the second-largest employer in the market, with a workforce exceeding 25,000 employees. UCI’s research endeavors have fostered robust collaborations with the private sector. Several prominent biotech and medical device companies, including Edwards Lifesciences, AbbVie, Medtronic, and Abbott Laboratories, maintain substantial operations in Irvine.
Orange County Multifamily Market
As of Q1 2024, Orange County’s multifamily vacancy rate stands at a mere 3.7%, the second lowest among the largest 50 multifamily markets in the nation. Increasing demand in the region is expected to easily accommodate the projected influx of new supply. Despite escalating housing expenses, demand remains high, and rents are expected to increase at a steady rate due to controlled supply growth.
In 2023, landlords responded to the resurgence in rental demand by raising rents by 4%. However, in recent months, rents have slightly decreased, resulting in a 2.8% rent growth as of Q1 2024.
Amid a nationwide slowdown in sales activity, Orange County’s apartment market has demonstrated greater resilience, maintaining higher levels of liquidity. In 2023, a total of 122 transactions amounted to $1.4 billion in sales volume, representing a decline of approximately 30% from the market’s previous five-year average. This decline was considerably more modest compared to the national downturn of 56%. As of Q1 2024, sales volume stands at $233 million, derived from 12 deals.
Despite experiencing reduced sales activity due to fluctuations in the capital market, Orange County continues to draw investors because of its historically robust demand, low supply risks, and strong rent growth performance. Institutional investors and REITs, primarily located in Los Angeles, represented 35% of the acquisition volume in 2023, marking an increase from the average of 21% seen over the past decade.
Rising Costs of Orange County Homeownership
The cost of owning a home has become increasingly expensive for Orange County residents, and as a result, multifamily properties have seen a rise in demand. According to REbusiness, the median single-family home price in Orange County is $1.03 million. With a 20% down payment on a 30-year fixed rate mortgage at current rates, the average monthly payments total $5,632. In comparison, the average rent for a multifamily property in the market is $2,160 per unit, making Orange County the fifth most expensive major market in the country, but also rendering renting a more cost-effective choice than homeownership. This trend is driving increased demand across various regions, especially in coastal and south Orange County markets and Class A core market buildings.
In 2023, Orange County’s construction activity surged despite nationwide downturns. Major projects, such as Irvine Company’s Marketplace Mall redevelopment, contributed significantly, with nearly 3,000 units in the pipeline. As of the first quarter of 2024, approximately 6,500 units were under construction, comprising 2.6% of Orange County’s existing apartment inventory. This percentage is in line with the previous years, due to land limitations after COVID-19.
Takeaways
Investing in multifamily properties in Orange County offers investors a combination of steady cash flow, potential for capital appreciation, and a favorable market environment supported by strong demand and economic fundamentals.
