LOS ANGELES (Business Wire) - Slow and steady gains in the overall Southern California economy will continue to push up apartment rents and occupancy rates that now rank among the highest in the country, according to the Casden Real Estate Economics Forecast released today by the University of Southern California Lusk Center for Real Estate (www.usc.edu/lusk). Overall, almost 97 percent of apartments in Los Angeles, Orange, Riverside and San Bernardino counties are currently rented and those occupancy rates should remain steady this year. Rent increases of six to seven percent can be expected in Los Angeles where the average monthly rent at the end of last year was $1,416. Orange County renters also can expect a rent hike of six to seven percent beyond the average monthly rent of $1,390. Inland Empire rents, which averaged $1,012 per month at the end of 2005, should rise about five percent this year.
"The recent run-up in home prices makes apartment living more desirable," explained Delores Conway, Ph.D., director of the Casden Forecast. "And the tight supply of land coupled with more condo conversions means fewer available units. That translates into higher rents and occupancy rates for the next couple of years." She added that apartment demand will benefit from the region's increased growth in trade along with an infusion of higher paying jobs associated with business and professional services.
The Forecast analyzes apartment transactions, new building permits, leasing activity and employment data using information from MP/F YieldStar, Property & Portfolio Research and other sources.
Los Angeles County Forecast
Demand for apartments will continue to be supported by the addition of 45,000 to 60,000 forecasted new jobs. LA County leads the nation in multifamily development with 10,900 new apartments under construction at the end of 2005. Constrained by available land, these projects will average only 57 units. By comparison, apartment projects in Orange County average 270 units. With the urban lifestyle appealing to more households, downtown Los Angeles accounted for one-third of all apartments completed in the county in 2005. Occupancy rates downtown -- currently at 98.2 percent - are the highest in the county and will continue to be tight. For West Los Angeles, rents are rising as the long-awaited jobs recovery puts positive pressure on the rental market.
The Hollywood submarket's makeover in Hancock Park, Los Feliz, Silver Lake and Park La Brea should keep apartment demand strong this year. The South Bay submarket is on a steady path to recovery, boosted by federal spending and accelerated growth in global trade. The Antelope Valley continues to be Los Angeles' most affordable submarket, with average monthly rents of $916 per month last year.
Orange County Forecast
With some of the highest home prices in the nation and fewer apartment completions in 2005, Orange County's apartment market is poised for another stellar performance. Significant demand continues in both Anaheim (the most affordable) and Newport Beach (the most expensive). Irvine remains a dominant submarket with the greatest number of new apartments completed. Six new communities with a total of 1,400 apartments are scheduled to open in 2006.
Rents are moving upward in desirable Newport Beach, with average rates of $1,892 per month -- one-third higher than the rest of the county. There has been no new apartment construction there since 2002. Anaheim is undergoing significant new construction and urban revitalization with two upscale projects bringing almost 500 new units to market this year. In Buena Park, no new products are expected to come online this year while occupancy remains extremely tight so further rent increases are expected.
Inland Empire Forecast
Readily available cheap land has fueled the growth of affordable apartments for the rising labor force of technicians and business professionals. The Inland Empire's robust multifamily market will see steady, but moderate rent increases thanks to almost 6,000 new units opening in 2006. The trade-based submarkets near Ontario Airport continue to be strong, helping the entire region hold on to the title of California's fastest growing urban area over the next 10 years.
In the near term, available supply of apartments may exceed demand so that rent increases could become more tempered this year, with the rate of growth at approximately five percent. The Foothill Area, close to job centers in Los Angeles and Orange County, should continue to have the most expensive rents which averaged $1,172 per month at the end of 2005. This area is centered around Ontario Airport and includes Rancho Cucamonga. Southwest Riverside County including Temecula, Murrieta and Wildomar is the market leader in new construction with 3,000 units underway.
Copies of the Casden Real Estate Economics Forecast can be obtained for $75 by calling the USC Lusk Center for Real Estate at (213) 740-5000 or by email: lusk@marshall.usc.edu.