Apartment Rents Drop Slightly for 2nd Year in a Row

Apartment rental rates in Orange County dipped again slightly in the past year as owners feared price hikes would leave units vacant because of pessimism about the economy and more people losing their jobs.

Rates fell 0.4% to $775 from $778, the second year of a price decline, according to a 1993 study conducted by the Research Network Ltd. in Laguna Hills. With adjustments for inflation, the decline in rent was nearly 4%.

“From a renter’s perspective, this is a great deal,” said Pamela S. Wooldridge, principal at the Research Network. “It’s becoming more and more affordable to more and more people.”

The survey showed average rental rates starting at $527 for a studio and $1,388 for a four-bedroom apartment. The $775 figure is an average of 83,000 units of all types, but that sum would probably get get a typical one-bedroom unit in much of Orange County.

The decline is somewhat surprising given a lack of apartment construction and countywide occupancy that climbed almost a full percentage point to 96%. But Orange County lost 15,000 jobs in 1992, in addition to a loss of 60,000 jobs a year earlier, according to the state Economic Development Department.

“It’s the fear factor,” Wooldridge said. “But (the occupancy rate) is still very high.”

Another real estate analyst said that more apartment tenants are opting to buy homes or condominiums because of a decline in home prices and lower interest rates. When a tenant leaves an apartment unit for a single-family home, landlords fill the vacancy, but often at lower rental rates.

“They look at the housing prices and say, ‘My monthly outflow will be about the same if I buy,’ ” said Gary Wescombe, partner at the Newport Beach office of Kenneth Leventhal & Co., an accounting firm. “The landlord then has to bring down rents because the next tenant can’t afford as much. The occupancy may be getting better, but the (salary) of tenants is not as good.”

The survey also showed that the $775 average rental rate is well behind the rate of inflation since 1985. Had rental levels matched inflation over the past eight years, the average rate for all units should have been $991.

It also has become more common for apartment owners to offer prospective tenants incentives, such as a month’s free rent in exchange for signing a one-year lease. Such marketing methods increase occupancy, but cut into cash flow. Of those landlords surveyed, 69% said they offer incentives, up from 67% in 1992 and just 20% in 1988.

Although beach cities led the list of Orange County’s priciest units, rental rates actually fell sharply in some coastal communities. Considering inflation, Laguna Beach apartment rents took the greatest beating, falling 9.1% to $881. Huntington Beach, Newport Beach and Seal Beach also showed declines of 4.5% to 5.5%.

Meanwhile, North County was the only one of three regions in Orange County to have an overall gain in rents, rising 1.7% to $727, from $715. Wescombe pointed to the area’s strong job base.

“That is more in the proximity to the employment market,” Wescombe said. “If you’re going to be in an apartment, why not be close to work?”

While rents in South County cities generally declined, there was a big jump in Laguna Niguel. Rents rose 16.7% to $999, from $856, the biggest increase among all cities surveyed. Wooldridge said there was no specific explanation for the rise other than eight of the dozen complexes surveyed in the city hiked their rent.

Apartment construction was virtually at a standstill in 1992. And permits for fewer than 100 units were issued for construction in the first three months of 1993, Wooldridge said.

Still, about 4,000 units are in the planning stages. Those units, however, would not be ready for occupancy for another two to four years.

Another sign that building activity could pick up came last month, when the Irvine Co. renewed its apartment building efforts by forming a new division. The development giant, which owns more than 11,000 rental units in Orange County, had virtually ignored the market for two years.

Apartment Rents Drop

Apartment rental rates fell countywide by an average of 3.8% during the past year, though occupancy rates remained high. MOST EXPENSIVE

Average Average City rent 1993 occupancy Seal Beach $1,083 98.7% Laguna Niguel 999 95.8 Irvine 942 97.1 Dana Point 930 95.6 Newport Beach 928 94.2

LEAST EXPENSIVE

Average Average City rent 1993 occupancy La Habra $634 94.6 Buena Park 689 94.3 Fullerton 689 95.5 Tustin 697 96.0 Anaheim 699 94.2 County average $775 96.0%

Source: Research Network Ltd.