O.C. rent cuts triple U.S. declines

Date : 07/21/2010

For the second quarter, the average Orange County rent that apartment complex owners were “asking” for was $1,506 — and that rent was falling at a 2% annual rate. That’s a drop roughly triple the national rate of decline of 0.7%.

Orange County renters are enjoying rent declines that are tied for the 8th largest among 82 U.S. markets tracked. Bigger drops? Las Vegas, 4.2%; L.A., 2.9%; Phoenix, 2.8%; Westchester, N.Y., 2.6%; Oakland, 2.2%; Fairfield, Conn., and San Francisco, 2.1%. We note that Orange County and L.A. near the top of top rent cuts explains how Consumer Price Index data shows the biggest SoCal rent decline by this math since 1940.

Rents are down primarily due to growing vacancies. In Orange County, as the economy was softening, the apartment market was flooded with a supply of new rental complexes, primarily in Anaheim and Irvine. And homeowners who could not sell their homes became reluctant landlords, putting their properties on the rental market, too. On top of that, tenants who lost income or jobs, were forced to double up with roommates or move out. Bottom line: more rentals chasing fewer tenants.

Reis found 6.4% of Orange County apartments empty in the second quarter, up 0.2 percentage points in a year. That’s actually a lower vacancy rate than the nation as a whole — which ran 7.8% last quarter, up 0.1 percentage point in a year. (Worst? Jacksonville at 13.2%!)

Experts like Reis are seeing small signs that the renters’ upper hand in the market — forcing landlords to aggressively cut rents to lure in new tenants — may be waning. In Orange County, rents last quarter were flat vs. 2010’s first quarter as the vacancy rate was stable. Nationwide, rents rose 0.4% in the spring by Reis’ math.

Writes Reis’ director of research Victor Calanog, and note the “recovery” he speaks of is from a landlord’s perspective: “We now have two quarters’ worth of data showing that the apartment sector may indeed have bottomed in the fourth quarter of 2009, and may be on the path to recovery. This is consistent with our outlook that rental apartments will recover first (versus office, retail and other commercial sectors), as the economy and labor markets emerge from the recession. This doesn’t imply that recovery will be linear: as labor markets and consumer confidence wax and wane given continuing challenges both on the domestic and international front, recovery in apartment fundamentals may be muted.”

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