While rents are predicted to remain largely flat for the Southern California apartment markets, the 2011 Casden Multifamily Forecast from the University of Southern California Lusk Center for Real Estate reveals some signs of improvement after a period of steady decline.
The annual checkup, which includes analyses of four SoCal apartment markets (Los Angeles, Orange, and San Diego counties and the Inland Empire) showed across-the-board improvements in rents and vacancy rates in 2010. For the first time, the two year forecast also included details for all major submarkets.
"Though there's evidence that rents have begun rising at the national level, the most positive news we have in Southern California is that rents have stopped falling after two years of negative growth," said forecast co-author Tracey Seslen, Ph.D., of the Lusk Center. "Rents and vacancy rates will likely remain at their current levels for the next two years, signaling stabilization in the market and that the worst may be over."
Vacancy rates, however, remain 1 to 3 percentage points above their natural levels. Rents remained mostly flat across Southern California, ranging from a 1 percent increase in the Inland Empire to a 0.2 percent decrease in San Diego County, and continue to lag behind the nation and Western region, which experienced growth rates of 2.3 percent and 1.7 percent, respectively.
The 40 submarkets that comprise the four regions also showed positive signs, with 26 of the 40 submarkets experienced flat or increasing rents in 2010, compared to only three submarkets in 2009.
The forecast identifies five factors that will guide the future health of the overall SoCal multifamily market: employment; decreased apartment demand brought on by lower home prices; competition from shadow-market inventory; continued reduction in multi-family construction activity; and high oil/gasoline prices, which encourage employees to move closer to their workplaces.
According to the February jobs report, California has added 100,000 new jobs; however, home prices remain high in San Diego and Orange County.
"While we are no longer hemorrhaging jobs, home affordability remains bleak in some areas, both of which bode well for the multifamily market," said co-author Richard Green, director of the USC Lusk Center and co-author of the Casden Forecast. "However, it is unlikely that rents will rise until the greater economic health of the region improves and some of the excess inventory in the housing market disappears."
Using data from MPF Research and other sources, the Casden Forecast analyzes building permits, occupancy, rents and employment data in 40 submarkets that comprise the four SoCal regions. For the first time, the report offers a two-year forecast for each submarket in addition to four market forecasts. Also for the first time, the authors include 95 percent confidence intervals on forecast estimates. As a result, the 2011 Casden Forecast is the most current and precise tool for industry leaders and policymakers, as well as individual practitioners working at the neighborhood level.
The complete 2011 Casden Multifamily Market Forecast can be found online April 8, 2011 at www.usc.edu/casden. Some highlights from each market include:
Los Angeles County
In 2010, same-store rent grew 1.2 percent, compared to 6 percent decrease in 2009 and 3.8 percent decrease in 2008. Average rents grew 0.9 percent to $1,501
2010 occupancy rates were up 0.2 percentage points to 94.1 percent
2,500 jobs were created in 2010 with 25,000-35,000 more expected in 2011
By the end of 2012, vacancy rates are expected to fall less than 0.5 percentage points, while rents are expected to decline 3.2 percent
Orange County
2010 rents averaged $1,475, an increase of 0.8 percent over 2009
Demand outpaced supply in 2010, causing occupancy to increase 1.2 percentage points to 94.9 percent
6,500 jobs were created in 2010 with 20,000-30,000 expected in 2011
Rents and vacancies are expected to remain relatively flat through 2012
Inland Empire
Average and same-store rents saw SoCal's highest increases at 1 percent and 1.2 percent, respectively, in 2010
2010 occupancy rates increased 1.5 percentage points to 93.9 percent, the lowest in SoCal
Devastated by the recession, the area lost 7,600 jobs in 2010. However 10,000-15,000 new jobs are expected in 2011
Rents are expected to be flat through 2011 and increase 0.5 percent in 2012, while vacancy rates will remain flat over the next two years
San Diego County
The only metro area to experience decreased rents in 2010 (-0.2 percent), same-store rents increased 0.9 percent
Occupancy grew 0.4 percentage points in 2010 to 95.4 percent
5,200 jobs were added in 2010 with another 10,000-20,000 expected in 2011
Rents are expected to increase 0.4 percent in 2011 and 0.8 percent in 2012, while vacancies will remain flat through 2012