Rent growth appeared to slow in Orange County in the third quarter of 2022, but even amid fears of slowing economic growth, its rock-bottom vacancy rates are likely to remain low. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.
‘Spectacular’ Q2 for Orange County multifamily — but market may have peaked
After a spectacular second quarter of 2022 in terms of vacancy and rent growth trends, third quarter numbers for Orange County appeared to show signs of moderation. Effective rents rose 5.9% in the second quarter, allowing the market to achieve year-over-year effective rent growth of 24.1%, according to Moody’s Analytics CRE. However, that may well be Orange County’s cyclical peak, as rent growth slowed to 1.2% in the third quarter.
Vacancies remained tight, though they rose by a sliver in the third quarter — up 3.2% from 3.1%. To be fair, Orange County vacancies never rose past 3.8% even during the worst of the pandemic in 2020 and 2021. Demand for apartments in Orange County has always tended to eclipse the very modest amount of new supply delivered on an annual basis.
Apartment vacancies spike in Tustin submarket
But some submarkets are not so tight. The Tustin submarket saw vacancy spike by 300 basis points in the third quarter, up to 5%. This is the highest vacancy rate in the Orange County market, and represents the highest vacancy level recorded for this submarket since late 2010. But this was driven by close to 500 units of new construction that opened doors about one-third vacant.
Recession could slow rent growth, but vacancies likely to remain low
There is also the undeniable specter of slowing economic growth, as the fears of a recession continued to rise throughout 2022. If there is indeed a period of economic contraction in the next 12 months, Orange County rent growth may slow down — but occupancies are likely to remain fairly tight if historical performance is indicative.
By the editorial team at Story by J.P. Morgan
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