Third Quarter
Orange County’s Multifamily Market Demand Holds Firm in Q3 2025
Vacancy remains low, rents rise modestly, and deal sizes continue to shrink as investors prioritize quality assets.
New supply falls sharply while investor activity shifts toward quality and cash flow.
MARKET OVERVIEW
The overall multifamily vacancy rate continued to compress, dropping to 3.5% in Q3 2025, down from 3.7% in Q2 and 4.1% in Q3 2024. Driven by strong demand, the number of vacant units was 14.0% lower than the same period last year. Developers added only 70 new units during the quarter, contributing to a year-to-date total of 1,152 units delivered—a 65.2% decline from the same period last year. This sharp drop reflects ongoing challenges in construction driven by high interest rates, costs, and a slowing economy.
The average asking rent reached $2,711 per unit per month, up 0.4% from Q2 and 1.5% year over year, demonstrating modest but steady rent growth across the county despite broader economic pressures.
Sales activity in Q3 2025 presented a mixed picture. Transaction volume fell 35.9% from Q2 2025, while year-to-date sales volume totaled $1.36 billion, down 15.3% from the same period last year. However, a divergence in pricing metrics reflects the flight to quality: the average sale price per unit slipped 0.8% year over year to $321,741, while the median sale price per unit rose 5.9% to $391,667, reflecting selective appreciation among higher-quality assets. Total units sold year to date reached 4,153, a slight decline of 1.2% from the previous year. The average capitalization rate dipped 10 basis points year over year to 4.4%, while the average gross rent multiplier rose to 16.1 from 15.7—a combination that suggests investors are increasingly pricing assets on strong in-place rents despite lower cap rates.
TRENDS TO WATCH
The Orange County multifamily market continues to adjust to economic shifts, including employment trends, mortgage rates, and homeownership affordability. With borrowing costs remaining elevated, investors are selectively pursuing properties that demonstrate resilient cash flow and low vacancy.
The market trend continues toward smaller-unit transactions, with the average unit deal size in Q3 dropping to 15 units, a consistent decline from 18 in Q2 and 20 in Q1. This quarter saw only a few large-scale deals. The supply of new construction remains constrained, with 7,104 units currently under construction. While this total represents a modest increase of 9 units from the previous quarter, it is 131 units above the level seen one year ago. High costs and limited financing options are influencing both developers and investors, keeping inventory growth cautious.
Despite these headwinds, demand persists in the rental market, supported by limited homeownership affordability and historically low vacancy rates in many submarkets. average rents are rising modestly, and investors are adjusting expectations for both pricing and cap rates in response to continued macroeconomic uncertainty.
While the high cost of capital has prompted a reduction in large-scale sales and a decline in average deal size, investor caution is distinctly focused on quality. This is evident as the Q3 2025 median sale price per unit increased compared to last year.
With rents expected to continue rising modestly and demand for rental housing remaining strong, the multifamily market is poised for steady but cautious growth, anchored by strong rental demand despite persistent macroeconomic headwinds.
