Does the Multifamily Market Have More Room to Grow?

Demand for rental housing has continued to grow in Orange County. Low unemployment—which has hit 3%—and high single-family housing pricing has fueled the growth in the market—but with rising rental rates, can the market continue to grow? According to the latest quarterly report from Marcus & Millichap, the multifamily vacancy rate inched up 50 basis points and construction of new units trended down slightly, however, rental rates continued to climb—up 3.7% for the quarter. With the increase in vacancy rate, we asked Jonathan Giannola, regional manager at Marcus & Millichap, if this an indication of the softening in the market.

“Several areas in Central Orange County appear to have a little room for additional rent growth. Despite the demand, even in high rent submarkets like Newport Beach and Costa Mesa rents are very strong,” Giannola tells GlobeSt.com.

While the market is changing, it is still strong with tremendous investor interest. This year, the firm is expecting to see record deal volume, which is another indication of the strength of the market. “There is a certain momentum in the marketplace right now – both on the equity and debt side, all searching for investment opportunities,” Giannola explains. “The market is healthy, but we are experiencing some mild shifts. Our orange county office is expecting our best year from a transaction volume perspective. The first half was excellent, and I am expecting an equal or greater amount of transaction volume in the second half of the year.”

While development of new units trended down year-over-year, construction remains strong in the market. There are currently 4,350 units under construction, with most development happening between the coast and the 5 Freeway. Huntington Beach and West Irvine alone will receive 1,800, collectively. “That is where builders have really been able to drive rent,” says Giannola. “Aside from pockets of Costa Mesa, the large majority of multi family development is occurring in Irvine, where there is more available land.”

Looking ahead, Giannola says that he expects to see a healthy active market—and yes, there is more room for growth. “I do not anticipate much change if any in the vacancy rates for class-B and class-C product types,” he adds. “Given the high cost of housing in the majority of new apartment developments in South Orange county, there is a strong demand for B and C product in central Orange County. They are not making the standard apartment building for the mid-range renter anymore. Therefore, the rental rates should stay strong and the vacancy rates should stay strong as well.”