ORANGE COUNTY, CA-The slowdown in multifamily construction in Orange County during the first three quarters of the year will come to an end as more than 1,000 units come online this quarter, lifting annual deliveries to 2,000 units, Marcus & Millichap reports. The respite from new construction that facilitated improving operations over the first three quarters is over, and vacancy rates may see modest increases as a result, according to the firm.
Year to date, approximately 1,000 apartments have been delivered in the county, significantly below the 2,500 units completed in the second half of last year, says M&M. In 2012, builders added 2,800 units. Supply additions in the fourth quarter will surpass the total from this year’s first three periods, putting upward pressure on vacancy. However, this increase will not be enough to slow rent growth, since rents surpassed the prerecession peak one year ago.
While the local apartment market is still strong, some parts of the county are outperforming others, the firm also reports. Rent gains in low-income areas of the county are significantly below the countywide rate, an indication that apartment managers are seeing some resistance from renters to rental increases. This trend is expected to spill over into the more expensive areas of South Orange County during 2014 as demand for high-priced units dissipates and renters begin to double up, M&M predicts.
Builders delivered 200 rentals in the third quarter, bringing year-to-date completions to 1,000 units, or a 0.9% rise in stock, the firm also reports. An apartment community in the Rancho Mission Viejo development is the largest addition thus far.
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M&M also found that at the end of the third quarter, builders had 6,400 rental units underway in the county, including 6,000 market-rate apartments. The planning pipeline has more than 5,000 units.
The county’s largest apartment project, Los Olivos, accounts for more than one-quarter of the units underway. Several buildings are already in lease-up, which will limit the impact on vacancy when the project is finalized next year, according to M&M.
As GlobeSt.com reported in August, the number of housing-permit requests in Orange County has swelled considerably since 2010. According to locally based firm Hendricks-Berkadia at the time, multifamily permit requests had increased by 197.8% since 2010, and single-family permit requests had followed a similar trajectory.