IRVINE, CA-Hesitation to proceed with apartment construction in Orange County during the first half of 2013 is in part due to concern over rising interest rates, Bob Osbrink, regional manager of Marcus & Millichap, tells GlobeSt.com. However, the pause is over, and construction is expected to resume at a robust pace during the second half of the year.
As GlobeSt.com reported last week, the firm reports that thousands of apartment units are due to deliver during the next six months, and permits are outpacing completions so far this year. Osbrink and Stewart I. Weston, M&M’s senior director, institutional property advisors group, say that what looked like a slowdown on paper didn’t accurately represent developers’ eagerness to get the construction process going again.
“There’s a plethora of projects coming out of the ground, but it will take 18 to 24 months to complete,” says Weston. “There’s not a lot of Orange County land that’s zoned for multifamily currently—we’re seeing a lot of industrial land better rezoned as multifamily, but the process will take time.” With between 8,000 and 10,000 units in Irvine, Newport Beach and Huntington Beach due to deliver within the next six months, construction companies will be busy in the near future.
There are negligible amounts of concessions in the apartment market right now, Osbrink says, and most occupancies are phenomenal. “We’ve had no real construction in this marketplace for quite some time compared to Hollywood and the West side, where they have 20,000 units coming out of the ground. We have a fraction of that, but as employment continues to grow, we will see more construction.
The new deliveries shouldn’t have a major negative impact on vacancy rates, particularly since the construction is expected to be spread out over the next 24 to 48 months, Osbrink adds. “It depends on how strong the economy is and how well employment growth is” how quickly the product will deliver and how vacancy and rental rates will react.
The housing recovery is also positively impacting the apartment sector, Osbrink says. “You’ve got housing in general picking up. The value of homes is starting to rise again, which limits people from being able to purchase, and you continue to have people needing a place to live. The move to apartments is a great alternative when you look at the cost of housing in Orange County. There’s a gap you need to fill.”
Buyers are also still emerging from the economic downturn, some after months of unemployment, and are more likely to turn to the rental market, he says. “It’s a cautious decision on their part.”