Orange County, Inland Rents Rise

Most owners have been hesitant to raise rents significantly due to the weakened economy, but the overheated housing market and an improving employment situation will support stronger rent growth in 2004 in Orange County, according to John M. Przybyla, VP and regional manager of the firm's local office. He says high home prices will continue to limit homeownership and support strong demand for apartments in the county.

In the Inland Empire, solid fundamentals and strong population growth will keep the region among the top-performing markets in the nation, says Kevin A. Assef, SVP and regional manager of the firm's Ontario office. The stability of smaller properties has kept the Inland Empire apartment market among the healthiest in the nation, Assef says, with luxury apartments as the only sector that has suffered weakness over the last few years. But the luxury market has begun to improve as escalating home prices in the Inland Empire have put homeownership out of reach for many would-be buyers, he adds.

Among the other salient points about the Orange County and Inland markets, according to the new Marcus & Millichap studies of those regions, are the following:

In Orange County in 2004, developers are forecast to complete 1,700 apartment units, down from the 2003 total, which is expected to reach 2,100 units. Construction activity is declining due to the limited availability of developable land, and apartment builders are now seeking land that is zoned for different uses but in need of redevelopment. Countywide, the average rent as of the third quarter 2003 was $1,237 per month, up just 2.7% from 12 months earlier.

Prices paid by investors have continued to increase, with the current median price up 13% from 2002, to $107,000 per unit.

In the Inland Empire, builders anticipating long-term strength in the market will increase activity by 43% in 2004, to 3,070 units, from 2003's expected delivery of 2,150 units. The average rent in the region is expected to hit $872 per month by year end and is forecast to rise another 6% in 2004, to $924 per month. The average rent as of third-quarter 2003, at $857 per month, reflects a 6.3% increase on a year-over-year basis. During the first three quarters of 2003, the median price rose by 22%, to $63,000 per unit. The constant inflow of capital, along with better economic conditions and strong fundamentals, will allow prices to increase by another 8% in 2004, Marcus & Millichap forecasts.