For multifamily investors, California’s Orange County has a lot going for it. It has an employment base that is broad and growing. And if people don’t move to Orange County for the jobs, they come for its exceptional quality of life. Once they arrive, renting is an appealing alternative. Compared to the monthly cost of home ownership, Orange County rents are surprisingly reasonable. As a result, multifamily fundamentals are holding up very well, despite a surge in deliveries in 2022 and 2023. Occupancy has hovered around 96% for the past year—and rents are growing slowly but steadily.

Although deal flow remains sluggish, Orange County has lost less ground than its counterparts across Southern California—and developers are demonstrating their faith in the future of the county’s multifamily market by continuing to build. When the multifamily reset occurs, Orange County is likely to be among the first to rebound.

An Enviable Economy

The fundamental reason for Orange County’s resilient multifamily market is an economy that is diverse, stable, and forward-looking. Disneyland, which has attracted tourists to Orange County for the better part of 70 years, has 34,000 employees on its payroll. In May 2024, the Anaheim City Council gave final unanimous approval for DisneylandForward, the resort’s ambitious 40-year plan to develop underused areas of the park for new attractions, lodging, restaurants, and retail. Disney intends to spend $1.9 billion on the project over the next decade. As part of its agreement with the city, Disney has agreed to invest $30 million in affordable housing over the next five years.

Education is another pillar of the Orange County economy. The county’s second largest employer, the University of California, Irvine (UCI), is ranked a top 10 public university by U.S. News & World Report. In recent years, the UCI health system has invested $1.3 billion in new facilities, and in 2024, it acquired four community hospitals. Research conducted at UCI has attracted several prominent biotech and medical device companies to Irvine including Edward Lifesciences, AbbVie, Medtronic, and Abbott Laboratories. UCI Health is not the only healthcare employer in the county. Between them, Providence, Kaiser Permanente, Hoag Memorial, MemorialCare, City of Hope, and Children’s Hospital employ more than 40,000 people.

Given Orange County’s strong tourism, education, and healthcare sectors, it is not surprising that its unemployment rate over the last year ranged from 3.2% to 4.2%. It consistently outperformed the rest of the state and generally was on par with the country as a whole. In June 2024, unemployment was 4.0%. Employment is expected to grow by 0.9% in 2024, driven by both blue- and white-collar gains.

Steadily Growing Demand across All Apartment Types

Combine the vibrant job market with Orange County’s elevated cost of homeownership, and the result is consistently strong demand for apartments. Orange County home prices are high and going higher. In June 2024, according to Redfin, the median price rose 13.2% over the year to $1.2 million, putting it in the top 10 most expensive markets in the country. Even with a 20% down payment, mortgage payments alone are $6,250, compared to an average rent of $2,600.

Even households considered high income in other areas of the United States can find it difficult to bridge the ownership gap in Orange County. That’s why the demand for luxury apartments in areas like Newport Beach, Huntington Beach, and West Irvine remains strong.

Demand is equally high for Class B and C units. Overall, the occupancy rate for these apartments is running about 97.5%, but in areas where rents are below $2,300 a month, it is even higher. In Santa Ana, for instance, lower-tier occupancy rates are now above 98%.

Overall, occupancy has held steady for the last year around 96%—and this has put a floor under rents. After falling dramatically during 2022, rents have stabilized, inching up 1.8% year over year at the end of the second quarter 2024.

A Vote of Confidence

Solid demand also has had an effect on transactions and development. Although multifamily transactions have been thin on the ground, the Orange County market is more liquid than most. In 2023, sales volume was $1.4 billion, a decline of roughly 30% from the market’s previous five-year average, compared to a 56% downturn nationwide. One reason for its above-average market performance is that its strong market fundamentals have caught the eye of institutional investors and real estate investment trusts (REITs). They represented 35% of the acquisition volume in 2023, an increase from the 21% average of the past decade.

So far in 2024, Anaheim has seen a number of large transactions—such as the 254-unit Chateau de Ville and the 169-unit Coronado Palms sales—while the 310-unit Regency Palms in Newport Beach had the highest sale price seen this year, $127 million. Overall, total sales volume reached $877.8 million for the first half of the year, a 143% increase over the first six months of 2023. Industry experts estimate that cap rates have stabilized between 5.0% and 5.5% and are likely to begin trending downward.

Developers have also continued to build across Orange County. They completed nearly 8,000 apartments in 2022 and 2023, a 75% increase over the prior two years. But unlike other areas of the country, this added supply has not outstripped Orange County’s ability to absorb it in a reasonable amount of time.

Most of the previous years’ development was in the Santa Ana and South Orange County submarkets. The focus has now shifted to Irvine, with almost 5,300 units in a county pipeline totaling 8,300 units. These include Volar, with 876 mostly upscale apartments scheduled to open in late 2024. Not surprisingly, the Irvine Company is playing a large role in local development. Construction of Pacifica Place, a 1,100-unit complex designed to meet local workforce needs, should open in late 2024, and the company is adding 1,250 apartments to its 36-year-old Market Place mall, replacing 200,000 square feet of retail space. With limited available land, mall redevelopment has also taken off in other areas of the county. Plans have been unveiled to add multifamily to Block at Orange, Brea Mall, MainPlace Mall, Westminster Mall and Laguna Hills Mall.

A Market to Watch

For the moment, sales volume in Orange County, as in markets across the country, is constrained by the ongoing challenges of sourcing affordable capital, but its multifamily market has shown itself to be resilient. Although there was a bulge in postpandemic apartment deliveries, the supply overhang is modest, and rent growth has turned around.

Over the long term, favorable demand drivers, including the vibrant economy and the desirability of living in the region, will support the multifamily market. In other words, Orange County is in excellent position to attract investors when the multifamily market resets. With the recent declines in the U.S. Treasury notes and the increased likelihood of the Fed’s lowering rates in September, that reset may not be long in coming.

*Lument has an exclusive correspondent relationship with Arcus Harbor Real Estate Capital under which Arcus Harbor refers all Fannie Mae, Freddie Mac, and FHA loans it originates to Lument for underwriting, processing, and closing.

Download the full Orange County Market Report here.