LOS ANGELES, CA - The 2012 Casden Multifamily Forecast from the University of Southern California Lusk Center for Real Estate reveals a strong performance for the local multifamily market in 2011 and predicts more growth over the next two years.
The annual checkup, which analyzes four apartment markets -- Los Angeles, Orange, and San Diego counties and the Inland Empire -- showed across-the-board improvements in rents and vacancy rates in 2011. Over the next two years, rents are expected to see continued growth, though the rate of increase is expected to slow down in 2013.
USC Casden Forecast author Tracey Seslen, Ph.D., emphasized that rent growth in 39 of the region’s 40 submarkets is a sharp contrast from two years ago when only three submarkets saw increased rents, as well as last year when 26 markets showed flat or growing rents.
“A sharp drop in new construction, the dwindling supply of shadow-market units, and improvements in the macroeconomy have strengthened fundamentals on both the supply and demand side,” Seslen said. “This is boosting asking rents, reducing or eliminating concessions, and filling units. However, the rate of increase will begin to level off a bit by 2013.”
Los Angeles County, which had a 6.2 percent increase in average rents and 22,340 net move-ins, was the strongest performer. While all four markets again saw positive net absorption in 2011, only Los Angeles and San Diego counties saw an increased rate of absorption. While Orange County saw the largest increase in same-store rents (4.9 percent), it also had the smallest increase in average rents (3.2 percent).
“All four metro markets have returned to vacancy rates that are very close to their natural levels, which is the level at which inflation-adjusted rents remain constant,” Seslen added.
During the next year, rents will continue to rise at varying rates in each market. In 2013, the rate of growth is expected to slow as construction returns to normal levels. The future health of the multifamily market will also continue to be determined by employment, home prices, shadow-market inventory and oil prices.
The complete 2012 Casden Multifamily Forecast will be made available online at www.usc.edu/casden . Some highlights from each market include:
Los Angeles Forecast
The forecast predicts average rents will increase 7.9 percent to $2 per square foot in 2012 with total growth of 9.6 percent to $2.04 per square foot by the end of 2013. Vacancies are expected to rise slightly in 2012 with increases continuing in 2013 as rent growth slows.
Renters have been moving out of shadow market inventory and back into traditional multifamily product. This trend is expected to continue through 2012.
Completions were down 53 percent from 2011 to 2,483 units and are expected to remain at that level for 2012.
While 35,000 to 40,000 jobs are expected to be created in 2012, the county is currently showing job losses in the first months of 2012.
Falling home prices may cause the county’s multifamily market to lose its most creditworthy renters to home purchases.
Orange County Forecast
The forecast predicts average rents will increase about 3.3 percent to $1.78 per square foot in 2012 with total growth of 5.1 percent to $1.83 per square foot by the end of 2013. Vacancy is expected to remain relatively stable during this time.
The county’s home prices are the least affordable in Southern California, thereby negating the short-term impact of lower home prices on demand or rents.
Shadow market competition will remain low.
Though 20,000-25,000 new jobs are predicted for 2012, Orange County has started the year in negative territory.
A ten-fold increase in completions, to nearly 3,000 new units, is expected to occur in 2012, but these units are confined almost entirely to the Irvine submarket.
Inland Empire Forecast
The forecast predicts an approximate 3 percent increase in average rents to $1.26 per square foot in 2012 and a total increase of 3.8 percent to $1.27 per square foot by the end of 2013. Vacancy is expected to fall this year, before rising in 2013.
Completions are expected to fall for the second year in a row to about 22 percent of their 2010 level and all expected completions are age- or income-restricted projects.
Although the Inland Empire added 900 new jobs in the first two months of 2012, this figure is off the pace predicted by economists of 10,000-15,000 new jobs by the end of the year.
With home prices down slightly in 2011 and remaining the most affordable in Southern California, increased employment will favor home buying.
San Diego County Forecast
The forecast predicts that average rents will increase 3.4 percent to $1.64 per square foot in 2012 and 5.2 percent total by the end of 2013, to $1.67 per square foot. As in Los Angeles, vacancies are expected to rise slightly in 2012 with increases continuing in 2013 as rent growth slows.
Completions will increase four-fold over 2011, but will remain about one-third below historic annual averages.
Home affordability is the second lowest in Southern California, keeping renters out of the home market, and competition from shadow-market supply is low.
The county is expected to add 20,000-25,000 jobs in 2012, but like Los Angeles and Orange County, it has lost jobs since the start of 2012.