In the landscape of California’s real estate market, Orange County continues to distinguish itself as the state’s tightest major rental market—a title it’s expected to uphold through 2024. This year, the region’s real estate dynamics are influenced by robust demand across all apartment sectors, a notable increase in construction, particularly in the Class A sector, and the looming decision on Santa Ana’s rent control measures. These factors collectively shape a complex but promising outlook for investors, renters, and stakeholders in the Orange County real estate market, according to a recent 2024 Multifamily National Investment Forecast by Marcus & Millichap.
Sustained Demand Across Apartment Sectors
Orange County’s rental market is buoyed by significant barriers to homeownership and a healthy job market, with traditional office-using, retail trade, and food service sectors contributing to a strong demand for rental units. This demand is further amplified by the shortage of affordable homes for purchase, pushing more residents towards renting. In response to a vacancy rate significantly below the long-term mean, the region is seeing its first major wave of new Class A apartment constructions in six years, centered predominantly in Irvine. This city, with its remarkably low vacancy rate of about 2 percent at the start of 2024, justifies the concentration of new developments. Despite these additions, the demand for Class B and C apartments remains robust due to the high rents in the Class A segment, ensuring tight conditions across the board.
Impact of Rent Control on Investment Trends
The potential implementation of rent control in Santa Ana is a pivotal issue that could significantly impact investment strategies within the county. With a measure set to appear on the ballot, the decision could either affirm or reject the city’s existing rent control law, which limits annual rent increases to 3 percent for units built before February 1995. This uncertainty may lead investors to exercise caution in Santa Ana, potentially diverting their attention and capital to adjacent cities like West Anaheim, Garden Grove, and Huntington Beach, where smaller complexes and more favorable pricing offer attractive alternatives.
2024 Market Forecast: A Mixed Bag of Opportunities and Challenges
- Employment Growth: Orange County is on track to lead Southern California in job creation, with an expected addition of 18,000 roles. This growth underpins the strong rental demand across the county.
- Construction Boom: The delivery of new units is set to reach a five-year high, expanding the local rental stock by 1.2 percent. This surge in construction is poised to address, at least partially, the demand for rental housing.
- Moderating Vacancy Rates: Despite a rise in vacancy rates last year, 2024 sees a slowdown in this trend as the market absorbs an additional 2,900 units, bringing the year-end vacancy rate to 3.9 percent—slightly below the long-term average.
- Ascending Rents: Orange County’s rental market is expected to experience its fourth consecutive year of rent growth, with the average effective rate climbing to $2,870 per month, surpassing Los Angeles to become Southern California’s most expensive rental market.
Looking Ahead
The real estate market in Orange County stands at a crossroads in 2024, with the potential for significant changes depending on the outcome of the rent control vote in Santa Ana. Meanwhile, the county’s strong job market, coupled with a surge in construction, is set to keep the rental market tight but dynamic. For investors, the current climate presents both challenges and opportunities, requiring careful navigation of the local market’s nuances and potential regulatory changes. As Orange County continues to evolve, its ability to adapt to these changes will be crucial in maintaining its status as one of the most desirable and competitive rental markets in California.
