Rents Lagged Pace of Inflation Last Year in Glutted O.C. Market : Survey: A county firm says apartment construction is tailing off, igniting investor interest in older complexes.
So many apartment complexes have been built in Orange County that rents last year didn’t keep up with inflation, and twice as many complexes offered a month or more worth of free rent to lure tenants.
That meant some apartment complexes were a poor short-term investment for landlords, the consulting firm Research Network Ltd. said Tuesday.
But Research Network, which discovered that construction of new apartments is tailing off, predicts that rents will rise faster in a few years. Real estate brokers say some investors are betting on this scenario when they buy local apartment complexes.
These investors believe that as county housing prices--already among the highest in the nation--rise beyond most residents’ reach, more people will be forced to rent.
The Research Network, a small consulting firm based in Laguna Niguel, estimated that occupancy at Orange County apartment complexes--there are more than 1,000--is 96.5%.
While that seems fairly high, it wasn’t enough to preclude many complexes from giving away free rent to induce tenants to move in. More than 9,000 new units came on the market in big apartment complexes in the last two years alone, bringing the total to nearly 190,000.
Even without the freebies, rent hasn’t gone up much during the last few years because of a building boom that began in the 1980s.
The research firm estimates that the average local apartment complex charges $794 a month in rent, up less than 3% from 1990’s $733. Since inflation was nearly 6% last year, the average rent should have risen to at least $819 in order to keep pace.
This year is expected to be another big one for new apartments; about 5,100 were under construction at the end of 1990 and should come on the market soon. But construction appears to be finally slowing down.
The research firm said only about 10,000 units were planned by developers this year, compared to about 15,600 last year, a drop of more than a third. It will be about two years, however, before the complexes begin filling up and forcing rents to rise faster, said Pamela Wooldridge, director of the apartment survey.
Considering the recent “mediocre financial performance” of apartments, Wooldridge said the industry faces the same scarcity of bank credit as other areas of real estate; long fights with local governments to get permission to build; a scarcity of suitable land in the county, and governments’ insistence that developers shoulder an increasing share of the costs of building roads and otherwise ameliorating the problems that their developments cause.
Thus in the long run, Wooldridge says, all those factors could make an investment in a complex that’s already built very profitable.
ORANGE COUNTY APARTMENT RENTS
Apartment rents, adjusted for inflation, declined in all but three Orange County communities in the past year.
Avg. ‘90-’91 1991 Percent City Rent Change Anaheim $704 -3.5% Brea 743 -1.0 Buena Park 696 -4.1 Costa Mesa 825 -5.5 Cypress 744 -1.7 Dana Point 875 -5.2 El Toro 774 -4.3 Fountain Valley 777 -3.2 Fullerton 693 -2.2 Garden Grove 751 -2.5 Huntington Beach 807 -3.9 Irvine 941 -2.9 Laguna Beach 877 -12.8 Laguna Hills 833 -6.6 Laguna Niguel 821 -13.0 La Habra 625 -5.1 La Palma 767 -2.7 Los Alamitos 680 -2.3 Mission Viejo 765 -6.3 Newport Beach 1,102 +1.5 Orange 757 -2.1 Placentia 810 -1.4 Rancho Santa Margarita * $767 -6.9 San Clemente 773 -4.1 San Juan Capistrano 858 -3.7 Santa Ana 779 +0.9 Seal Beach 1,384 +7.7 Stanton 730 -1.9 Tustin 704 -3.1 Westminster 740 -2.1 Yorba Linda 875 -5.5 Orange County Average 794 -3.0
* Includes Trabuco Canyon
Source: The Research Network Ltd.
MORE ROOMS FOR YOUR MONEY
Apartment rents in the southern third of the county averaged 22% higher than those in the northern third.
Average Rent North Central South Studio $564 $610 $711 One Bedroom 640 659 777 Two Bedroom/One Bath 742 741 902 Two Bedroom/Two Bath 819 837 954 Three Bedroom 921 922 1,090 Four Bedroom N/A 980 1,025 Total 714 737 871
Source: The Research Network Ltd.
