Orange County’s Multifamily Market Adapts to Shifting Trends in 2024
Internal migration, employment, and new developments are driving growth, while affordability and easing investor hesitation are shaping market conditions across the region.
MARKET OVERVIEW
Orange County’s multifamily market has experienced significant pent-up demand over the past year, driven by population in-migration. According to the California Department of Finance, the county’s population increased by 0.3% between 2023 and 2024, reaching over 3.2 million residents. This demographic shift has fueled a surge in multifamily construction, with nearly 7,844 units under construction as of Q2—a notable 11.8% quarter-over-quarter increase and a 29.0% rise from Q2 2023.
However, only 882 new units were added to the inventory in the first half of 2024, a 52.6% decrease compared to the same period in 2023, underscoring the significant pressures facing multifamily development. These pressures include high interest rates, rising construction costs, a slowing economy, and lower rent growth. These factors reflect ongoing adjustments in demand and supply, with newly completed units contributing to an increase in average asking rents. Although the rate of increase was modest—1.3% quarter-over-quarter and 1.6% year-over-year—the average rent reached an all-time high of $2,617 per unit per month.
Orange County Multifamily Market Q2 2024 Statistics:
The vacancy rate also increased, rising by 10 basis points from the previous quarter and 20 basis points year-over-year, reaching 3.9%. Despite these challenges, sales activity remained brisk in the first half of the year. The number of units sold increased by a notable 96.5% compared to the previous year’s low volume, totaling 3,519 units year-to-date, up 11.5% from Q1. The average sale price per unit rose by 19.6% quarter-over-quarter but was down 13.9% year-over-year at $390,370. Regionwide, the sales dollar volume for the first half of 2024 surged by 107% from the same period in 2023. Additionally, the average capitalization rate increased by 60 basis points compared to last year, now standing at 4.6%.
TRENDS TO WATCH
The fundamentals in Orange County remain fluid as we enter the second half of 2024. A changing economy, employment trends, and in-migration continue to drive growth in the region, albeit at a slower pace. According to the California Department of Finance’s population estimates, Newport Beach, Huntington Beach, and Costa Mesa each experienced a population decline of 0.3% between 2023 and 2024. Meanwhile, Stanton saw a 3.6% increase, Irvine gained 1%, and Anaheim grew by 0.9%. This data reflects an internal migration from expensive coastal cities to more affordable inland communities.
Developers have taken notice of these shifting trends. Bonanni Development’s 5-story, 321-unit project in Stanton, expected to be completed this year, is one example. This development will primarily offer studio and 1-bedroom units, contributing to much-needed workforce housing. In Santa Ana, The Row at Red Hill will add 1,100 units across four blocks, along with 60,000 square feet of retail space, slated for completion this fall. Additionally, the Archways Santa Ana project will bring 85 affordable apartment homes, also set for completion this year. Meanwhile, Irvine has two large apartment complexes under construction in the Irvine Business Complex, totaling 465 units, both expected to be completed this year, including affordable housing units.
Affordability and employment will be key drivers moving forward. According to the latest figures from the California Employment Development Department, the unemployment rate in Orange County’s Anaheim-Santa Ana-Irvine Metropolitan Division rose to 4.0% in June 2024, up from a revised 3.2% in May and higher than the year-ago rate of 3.6%. Employment continues to play a critical role in driving occupancy in new developments. While the region benefits from diverse industry employment, investors are navigating price discovery amidst elevated interest rates and shifting market conditions, leading to increased transaction volume.
