(RealShare Orange County convenes at the Hyatt Regency, Irvine, August 16 and save the date: RealShare Apartments comes to the Westin Bonaventure, Los Angeles, October 24)

ORANGE COUNTY, CA-Expansion in Orange County employment accelerated improvements in apartment operations in the first six months of the year, a trend that will continue through the second half, according to Marcus & Millichap. “Broad-based job gains across most sectors have ignited household formation, improving vacancy rates in both high-end and lower-tier apartments, and across nearly every submarket,” according to the firm’s recent apartment report for the region.

According to a recent employment report issued by Beacon Economics, the state's unemployment rate ticked down slightly from 10.8% to 10.7%, although the labor force also contracted, indicating that some workers have ended their job search and left the labor market. Still, year-over-year, California's unemployment rate has fallen 1.2 percentage points from 11.9% in June 2011 to 10.7% in June 2012—a much faster decline than in the nation overall where unemployment fell by 0.9 percentage points on a year-over-year basis during the same time period, the firm says.

Class B/C operators will benefit from expansions by retailers such as Walmart, which is opening five stores in the county over the next 12 months and growth in the tourism industry is also a boon for lower-tier apartment owners, says the M&M report. “As job growth creates demand for rentals, and vacancy falls across the county, owners will gain leverage to further increase rents, enticing builders to accelerate delivery schedules in the coming months,” the report says.

The outlook for housing and demographics is that the high cost of housing in the county will continue to make renting the most attractive option for residents, preventing the residential housing market from becoming a substitute for rentals, according to the report.

In terms of construction, after the delivery of 93 units in 2011, the firm points out that builders will add 2,600 rentals in 2012.

For vacancy, the firm predicts that apartment vacancy in Orange County will end 2012 at 3.5% and for rents, asking rents are expected to bump up 3.6%.

On the sales side, the firm predicts that “1031-exchange buyers will continue to pursue lower-tier properties as a place to put cash to avoid capital gains tax, increasing transaction velocity in the second half. Investors with long-term hold strategies will target properties in coastal areas.”

*source: Marcus & Millichap