Forecast: O.C. Rents to Soar 4.5% in ’11

Rents in apartment units and homes are forcast to rise in 2011. This is good news for my clients who are serous investment property owners, and it's fantastic news for those who own more than one property. If you are already a landlord and want to expand your investment portfolio, or if you're looking to enter the investment property market, now might be the perfect time to do it.

-Jim
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By Jeff Collins, the Orange County Register

Orange County apartment tenants should brace themselves for the biggest rent hikes in three years, with landlords pocketing 4.5% more rent in 2011 than they did last year, a Los Angeles-based national real estate brokerage said forecast.

Vacancy rates will fall this year as employment rates increase and new construction lags further and further behind demand, according to Marcus & Millichap’s 2011 National Apartment Report.
As a result, Orange County is expected to rank fifth best for landlords among 44 U.S. metro areas. That’s up from seventh best in 2010′s rankings. According to the report’s Orange County forecast:

“Job creation in Orange County will outpace other major California markets for the second consecutive year, fueling considerable occupancy gains as completions slip to historic lows. … Rising occupancy across all property classes will enable owners to withdraw concessions.”

Specifically, the forecast states:

• Owners will raise asking rents by 3.7% this year to $1,535 per month.
• There will be a 4.5% increase in O.C.’s “effective” rental rate — the amount landlords actually take in after concessions and discounts (one month’s free rent, move-in allowances, etc.). The average “effective” rent is forecast at $1,482 a month, equivalent to 13 fewer days of free rent in concessions.
• O.C.’s vacancy rate will fall by 1.3 percentage points to 4.4%.
• O.C. employment will increase by 36,000 positions this year — the most bullish jobs outlook yet for Orange County. Economists at Cal State Fullerton, Chapman University and UCLA have forecast that jobs would increase this year by 18,300 to 24,000 positions.
• Meanwhile, developers are expected to add just 300 new apartments to the county’s inventory this year. By comparison, developers finished building 2,300 new apartment units in 2010, and between 1,000 to 4,000 units a year from 2007 to 2009. The construction forecast doesn’t take into account recent deals in which investors purchased condo buildings and converted them into apartments.
• Increased hiring and a lack of housing options for lower-income workers will accelerate leasing activity for second- and third-tier “Class B” and “Class C” complexes, particularly in north O.C. In Fullerton and Buena Park, for example, Class B/C vacancies will fall into the low-3% range as residents return to work and room-mates move out into their own apartments.
• In the South Anaheim areas like the Platinum Triangle, however, a 15% expansion in top-tier “Class A” apartments over the past two years will keep operations soft through 2011 and force owners to maintain concessions at nearly twice the countywide average.

According to RealFacts, average rents at Orange County’s large apartment complexes fell from the year before for two consecutive years. The last time asking rents increased by more than 3.7% was in the winter of 2008.

Click here to read "Forecast: O.C. Rents to Soar 4.5% in '11" on the Orange County Register.

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