Multifamily Forecast:

2012 USC Casden Multifamily Forecast

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The annual Casden Multifamily Forecast Report assesses conditions for multifamily product types. The analysis generates forecasts of annual apartment rents and vacancy levels for Los Angeles County, Orange County, the Inland Empire, and San Diego County. The report also offers insights as to which submarkets within these areas are likely to outperform in the near future. The market data was supplied by M/PF YieldStar. The following summarizes key findings:

Los Angeles County
The forecast predicts average rents will increase 7.9 percent to $2 per square foot in 2012 with total growth of 9.6 percent to $2.04 per square foot by the end of 2013.  Vacancies are expected to rise slightly in 2012 with increases continuing in 2013 as rent growth slows.

  • The positives: 
    • Renters have been moving out of shadow market inventory and back into traditional multifamily product.  This trend is expected to continue through 2012.
    • Completions were down 53 percent from 2011 to 2,483 units and are expected to remain at that level for 2012. 
  • The negatives: 
    • While 35,000 to 40,000 jobs are expected to be created in 2012, the county is currently showing job losses in the first months of 2012.
    • Falling home prices may cause the county’s multifamily market to lose its most creditworthy renters to home purchases. 

Orange County
The forecast predicts average rents will increase about 3.3 percent to $1.78 per square foot in 2012 with total growth of 5.1 percent to $1.83 per square foot by the end of 2013.  Vacancy is expected to remain relatively stable during this time. 

  • The positives: 
    • The county’s home prices are the least affordable in Southern California, thereby negating the short-term impact of lower home prices on demand or rents.
    • Shadow market competition will remain low. 
  • The negatives: 
    • Though 20,000-25,000 new jobs are predicted for 2012, Orange County has started the year in negative territory.  
    • A ten-fold increase in completions, to nearly 3,000 new units, is expected to occur in 2012, but these units are confined almost entirely to the Irvine submarket. 

Inland Empire
The forecast predicts an approximate 3 percent increase in average rents to $1.26 per square foot in 2012 and a total increase of 3.8 percent to $1.27 per square foot by the end of 2013.  Vacancy is expected to fall this year, before rising in 2013. 

  • The positives: 
    • Completions are expected to fall for the second year in a row to about 22 percent of their 2010 level and all expected completions are age- or income-restricted projects.
  • The negatives:
    • Although the Inland Empire added 900 new jobs in the first two months of 2012, this figure is off the pace predicted by economists of 10,000-15,000 new jobs by the end of the year.
    • With home prices down slightly in 2011 and remaining the most affordable in Southern California, increased employment will favor home buying.

San Diego County
The forecast predicts that average rents will increase 3.4 percent to $1.64 per square foot in 2012 and 5.2 percent total by the end of 2013, to $1.67 per square foot.  As in Los Angeles, vacancies are expected to rise slightly in 2012 with increases continuing in 2013 as rent growth slows.

  • The positives: 
    • Completions will increase four-fold over 2011, but will remain about one-third below historic annual averages.
    • Home affordability is the second lowest in Southern California, keeping renters out of the home market, and competition from shadow-market supply is low. 
  • The negatives:
    • The county is expected to add 20,000-25,000 jobs in 2012, but like Los Angeles and Orange County, it has lost jobs since the start of 2012.