SoCal Apartment Rents Head Toward Stabilization

By Bob Howard

LOS ANGELES-Apartment rents have flattened out in Southern California, which is an improvement after two years of decline, according to the USC Lusk Center Casden Forecast. The forecast predicts that rents will remain flat for Orange County, San Diego County and the Inland Empire for the next eight quarters, with a slight decline in Los Angeles County. It says that the flattening is a sign of stabilization and likely means that the worst is over for the region’s apartment rental picture.

 The Casden study showed what it called “across-the-board improvements in rents and vacancy rates in 2010.” Co-author of the forecast, Tracey Seslen, of the Lusk Center, said, “"Though there's evidence that rents have begun rising at the national level, the most positive news we have in Southern California is that rents have stopped falling after two years of negative growth."

Vacancy rates, however, remain from 1% to 3% above their natural levels, the forecast said. Rent changes ranged from an increase of 1% in the Inland Empire and a decrease of 0.2% in San Diego County. These compare with rent growth rates of 2.3% nationally and 1.7% in the West.

The region studied by the forecast comprises 40 submarkets, with rents remaining flat or increasing in 26 of the 40 in 2010, compared to only three submarkets in 2009. The forecast identifies five factors that will guide the future health of the overall SoCal multifamily market: employment; decreased apartment demand brought on by lower home prices; competition from shadow-market inventory; continued reduction in multi-family construction activity; and high oil/gasoline prices, which encourage employees to move closer to their workplaces.

According to the February jobs report, California has added 100,000 new jobs; however, home prices remain high in San Diego and Orange County. Richard Green, director of the USC Lusk Center and co-author of the Casden Forecast, observed:

"While we are no longer hemorrhaging jobs, home affordability remains bleak in some areas, both of which bode well for the multifamily market. However, it is unlikely that rents will rise until the greater economic health of the region improves and some of the excess inventory in the housing market disappears."

Using data from MPF Research and other sources, the Casden Forecast analyzes building permits, occupancy, rents and employment data in 40 submarkets that compose the four SoCal regions. For the first time, the report offers a two-year forecast for each submarket in addition to four market forecasts. The complete forecast, available online, includes highlights from each market.

Source: GlobeSt.com