While prospects for Orange County’s apartment market look good in the medium and long term, the threat of a recession means multifamily investors should brace for volatility. Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take, leveraging data from Moody's Analytics CRE.
Asking and effective rents for Orange County apartments both declined by a somewhat worrisome 0.7% in Q1 2023. That is comparable to quarterly declines observed during the worst periods of the pandemic, back in 2020, according to Calanog.
Vacancies also rose 20 basis points to end Q1 2023 at 3.5%, Calanog says. Optimists will argue, however, that 3.5% is an enviably low vacancy level — lower than pre-COVID rates. The first three months of the year also tend to be slower months for apartment leasing, and performance metrics might roar back in the spring and summer.
What should give investors pause is how the U.S. economy appears to be teetering toward a recession, and specifically how recent turmoil in liquidity may spill over into a real pullback in credit. Credit-driven recessions tend to be deeper and longer than others.
Keep an eye on Costa Mesa vacancies
Some submarkets in Orange County might be hit harder than others. The Costa Mesa submarket already has a relatively higher vacancy rate than others, at 5.5% as of Q1.
Fortunately, supply growth for the metro as a whole appears moderate, relative to other markets and the nation as a whole.
Long-term multifamily outlook remains bright
Calanog says multifamily investors would do well to prepare for a somewhat volatile near-term, even as medium- to long-run prospects remain robust for the sector. Demographic support remains solid in Orange County, with millennials and Generation Z representing some of the largest cohorts of potential new renters in history.
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