Orange County Multifamily - Challenging Times Lie Ahead
Orange County was one of the first regions to impose stringent lockdown measures to contain the spread of the coronavirus, and this was reflected in the multifamily market’s evolution. The metro’s average rent contracted 0.5% on a trailing three-month basis through May, 30 basis points lower than the U.S. rate. Still, the county’s $2,121 average is well above the $1,460 national figure.
Despite its robust economy, nearly 5.2 million unemployment claims were filed in California during the first three months of the pandemic. Still, while only three sectors registered job gains in the 12 months ending in March, the unemployment rate rose to 13.8% in April, below the 14.7% national rate. The leisure and hospitality sector was also badly hit; a California State University, Fullerton study calculated that Disneyland’s closure is costing Southern California some $23 million per day. In mid-June, California’s economy began reopening, but by late June Gov. Gavin Newsom had paused the reopening of additional sectors in 15 counties, including Orange County.
Transaction activity, already dampened by the recent rent control bill, has nearly halted, with only $62 million in multifamily assets trading in the metro in the first five months of 2020. The county had 4,635 units underway as of May and 849 apartments delivered during that period. Yardi Matrix expects rents to remain at a 0.5% decline through year-end.
RENT TRENDS
➤ Orange County rents contracted 0.5% on a trailing three-month basis through May to $2,121, while the national rate slid only 20 basis points to $1,460 during the same time frame.
➤ The slide comes in part from the early and stringent measures local officials implemented to curtail the spread of the coronavirus. Moreover, it signals that even though the multifamily is one of the least affected markets during an economic slowdown, rents and occupancy rates will not remain uneroded.
➤ The average rent in the Lifestyle segment saw the largest decline—down 0.6% to $2,413—while Renter-by-Necessity rents slid 0.4% to $1,920.
➤ At the end of May, Gov. Gavin Newsom extended the eviction moratorium that bans the enforcement of eviction orders for residential renters affected by COVID-19 until July 28.
➤ Rent growth has been spotty across the map—the average rent in the most sought-after region in Orange County, Newport Beach, rose 30 basis points to $2,761, while the rate in South Irvine slid 110 basis points to $2,541. La Habra, the submarket with the most affordable average rent, marked a 0.4% rent decrease to
$1,757. The highest rent performance was registered in Brea, where prices rose 5.1% to $1,890.
ECONOMIC SNAPSHOT
➤ Orange County’s unemployment rate rose from 3.7% in March to 13.8% in April. Employment growth had been well below the U.S. rate through the 12 months ending in March, 0.9% versus 1.4%, in part because the area’s working-age population is shrinking, as residents relocate to metros where housing and overall living costs are more affordable.
➤ California was one of the first states to impose stringent lockdown measures to contain the virus spread; this pushed the unemployment claims filed across the state to nearly 5.2 million in the first three months of the outbreak. Still, the metro’s diverse economy, including its tech-heavy employment hubs, could help it
withstand the COVID-19 crisis. Theme park closures in March translated into a big financial hit for the region. A study by California State University, Fullerton estimated that Disneyland’s closure could have an impact on South California’s economy of $23 million per day.
➤ In mid-June, California’s economy began reopening, but by late June the state had changed course, with Gov. Gavin Newsom pausing the reopening of additional sectors. The 15 counties facing delayed re-openings included Orange, L.A., and Sacramento counties.
SOURCE: Yardi Matrix
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