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IRVINE, CA-All the factors are in place to keep Orange County’s apartment market thriving despite a slowdown in the national economy, according to a newly released report by Marcus & Millichap.

With a diversified local economy, positive job growth of 3% or 40,000 new jobs projected during the next 12 months, and a 2.5% unemployment rate, population growth is expected to continue in the county despite higher energy costs and rolling blackouts. Additionally, with the median household income of $57,395, only 26% of Orange County families can afford to purchase a home. All told, with developers expected to start construction on only 2,200 units this year, the market for available apartment units will remain tight and rents are projected to adjust further upwards accordingly.

Due to the significant rate of growth in rentals the past few years, more and more building owners are opting out of the Federal Government’s assisted-housing program and converting their buildings to market rate complexes. The report notes that only 77% of potential tenants looking for Section 8 housing are going to find it in Orange County this year. From the first quarter of 1998 through the first quarter of 2001, average apartment rents have risen 28% from $917 to $1,181 per month. Rents are projected to increase another 6% this year after a 13% increase in 2000.

“The theme in apartment construction in Orange County continues to be ‘too little too late,’” the report notes, even though the county had an all-time high number of permits issued to build units last year. The most active developer of product is still the Irvine Co., which completed 1,400 units last year. The properties that will be delivered this year will be luxury apartments mainly in Irvine and south county. One of the largest projects currently under construction in the county is the City Lights Apartments in Aliso Viejo delivering 426 units later this year and another 367 units in 2002.

“It’s not the fact there isn’t land, but getting too expensive to buy and land and build it too,” says Brian W. Abernethy, senior market analyst at the Irvine office of Marcus & Millichap and the report’s author. ” A lot of cities are anti-growth, anti-dense housing. They don’t mind single-family housing, but most of them don’t want apartments, especially in south county.”

Rising rents and affordability issues have not kept building owners from keeping their apartments mostly full. Vacancy is the tightest in the north and central cities areas with less than 3% vacancy. Countywide, the report calls for no change in vacancy rates this year. “The only thing is people aren’t quite willing to pay as much for apartments as they used to be. An example would be the Irvine Company giving concessions to long-time tenants,” Abernethy said.

Apartment sales hit record highs in 2000 with a total sales volume of $861 million and a record average price of $93,000 per unit. But due to economic uncertainty, sales have slipped so far this year. In all, there were only 44 sales transactions in the first quarter of the year compared to 74 transactions in the first quarter of 2000. No buildings with 50 units or more have sold, while activity has been brisk for properties with less than 20 units. As a result, sales prices are expected to decline by 5% this year.

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