Q2 2012 Orange County, California Apartment Submarket Trends

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Q2 2012 Orange County, California Apartment Submarket Trends

Mid-County/Irvine

  • Major employment centers (including Irvine Spectrum and Irvine Business Center), robust population growth, and proximity to John Wayne International Airport have made the city of Irvine the dominant player in Orange County apartment development over time.
  • From 2004 through the end of 2010, 8,931 market-rate apartments completed construction in the Irvine submarket.
  • No new market-rate units delivered in 2011.
  • Construction, however, remains a major factor. Reis expects 2,581 market-rate apartments, approximately 95.4% of the countywide total for the year, to complete construction in the Irvine submarket in 2012.
  • The Irvine Company. Consisting at present almost entirely of projects from The Irvine Company, a new cycle of development is underway in Irvine.
  • The sole completion year-to-date, per the date of this report, was the April finish of The Irvine Company’s 725-unit second phase of The Park at Irvine Spectrum at Spectrum and Alton Parkway.
  • Underway by The Irvine Company are 1,677 market-rate projects in four complexes belonging to Cypress Village Apartment Homes at Jeffrey and Trabuco roads. All phases, Cadenza, Murano, Umbria, and Veneto, are scheduled to deliver this August. The development celebrated its grand opening in April. Rents range from $1,478 to $2,791.
  • The 200-unit Verano Place student-housing project completed in August at 6529 Verano Place.
  • AvalonBay is constructing the 179-unit second phase of Avalon Irvine at Jamboree Road and Richter Avenue. Reis cites a December 2012 completion date.
  • More from the Irvine Company is on the way, including the 980-unit Park Place Apartments planned for Michelson Drive and San Diego Creek Trail.
  • In addition, the company is planning the 1,750-unit, 185-building Los Olivos “village” at the “Wild Rivers” site, as reported by the Orange County Business Journal (Business Journal).
  • “[A]nd a pair of land sites near [The Irvine Company’s] Park and Village complexes in the Spectrum that could see another 1,300 or so apartments built,” as reported by this source.
  • Not including Los Olivos, Reis reports 3,327 market-rate apartments in the Irvine submarket planning-proposal pipeline.
  • First half 2012 net absorption was 633 units. The 725 that delivered during the second quarter were accompanied by 522 units of net absorption.
  • Second quarter vacancy was 5.0%, up 60 basis points from a quarter earlier, down 50 year-over-year.
  • Average asking and effective rents were $1,987 and $1,946, respectively, up 1.1% each for the quarter following similar gains the quarter before.
  • Outlook. This year’s 2,581 units of new market-rate supply, much of which delivers in the third quarter, will be met by just a slightly smaller net absorption total, thus indicating a strong market.
  • Vacancy is projected to close 2012 at 5.9%. Large gains in average rents—4.4% for asking and 5.2% for effective, roughly doubling last year’s gains—are projected for 2012 all told.

Mid-County/Tustin; Newport Beach

  • Tustin Legacy. Residential development at the stalled, 820-acre Tustin Legacy development of the former Tustin Marne Corps Base is again moving forward.
  • More. With the city of Tustin now in charge of selecting developers, The Irvine
  • Company and St. Anton Partners have been selected to build apartments at the 51-acre first phase (the first of “about 13” phases), The Orange County Register (Register) reported in July. Construction, pending roadway improvements, should begin by md-2013.
  • More. The Irvine Company is negotiating on the construction of up to 744 apartment units on two parcels (20 and 7.5 acres). The firm has assigned the smaller parcel to St. Anton Partners for the development of 211 units. Reis describes the 211 units in the smaller phase as subsidized/low income.
  • More. More apartments have been approved for future development on the former Tustin Marine Corps base, the Register reported in April. “The city’s plan for the area had previously allowed a maximum of 20% of the units to be rentals. Now, the council has changed the plan to allow a maximum of 30% rental units.”
  • Second quarter vacancy and average asking rent in the Tustin submarket was 3.4%, down from 3.6% a quarter earlier, and $1,475, up 0.8%, respectively.
  • Newport Beach. There has been no rental construction in the Newport Beach submarket recently. Land is very expensive and in short supply.
  • One project—an unnamed 524-unit development at Jamboree and San Joaquin Hills roads at San Joaquin Plaza in the Newport Center area has been proposed by The Irvine Company.
  • More. “San Joaquin Plaza has been eyed for a potential housing project for several years,” the Business Journal reported in late April. It was entitled for 430 residential units in 2006. “This year’s re-entitlement efforts by the developer would bump up the number of apartments allowed at the site to 524.”
  • Vacancy in the high-end Newport Beach submarket closed the quarter at 2.9% down from first quarter’s 3.1%. The average asking rent was $2,120, up 0.5% after the previous quarter’s 1.1% loss. Only $10 separates the second quarter Class A and B/C mean asking rents.

North County/South Anaheim; Platinum Triangle

  • Although development in recent years has focused most heavily on areas of Central County, the urbanized North with its large population base and embedded demand also has seen significant activity.
  • In the lead has been the massive mixed-use Platinum Triangle infill redevelopment project in Anaheim, addressed in this section.
  • While condo development has slowed, for-sale projects played a major role in development in Anaheim and elsewhere in the recent past.
  • Platinum Triangle. Anaheim’s massive Platinum Triangle area near both Disneyland and the Angels professional baseball stadium, within Reis’ South Anaheim submarket, is the crown jewel of Orange County’s infill redevelopment.
  • According to the city of Anaheim’s late June 2012 development update, 18,909 multifamily rental and condominium units, unchanged from the previous report, have been awarded building permits. A number of major individual developers and projects are included.
  • With a minority of the planned projects already built (seven with a combined total of 1,920 units), others have been beset with lengthy delays as a result of economic factors.
  • The number of units currently approved but not yet under construction is reported by the city at 6,399. Included on this list is developer Lennar’s massive A-Town Metro development, the largest in the Triangle.
  • The development agreement for A-Town Metro, which represents 2,681 residential units (and other real estate components) as reported by the city, has been extended through December 13, 2015, the city reports. Three optional 5-year extensions, to December 13, 2030, are included in the agreement.
  • A-Town Stadium. The development agreement for LNR’s A-Town Stadium at 2050 S. State College Boulevard has been extended to January 2016 with optional renewal extensions to January 2026. The city reports 878 units planned.
  • Agreement pending. The development agreement for Experience at Gene Autry, with 1,208 residential units, is scheduled to expire on November 16. Its renewal, with two optional 5-year extensions through November 16, 2022, was pending per the date of the city’s report. The city cites Prologis as the developer.
  • Start date. At least one market-rate apartment project had a scheduled start date per the date of this report. Reis anticipates a June 2013 groundbreaking for 400 units in the second and third phases of the Park Viridian project at 1515 E. Katella. Completion should follow in February 2015. BRE Properties is the developer.
  • The development agreement for Orangewood Apartments, including downsizing from 341 to 320 units, has been extended until August 13, 2017. Integral Communities is the developer.
  • Platinum Vista is planned at 327 residential units and a small commercial component. Ronald Marshall Trust/Ewing Development is the developer.
  • According to Reis, 312 condo units are planned for the Platinum Gateway mixed-use project K/L Anaheim Properties I and II LLC.
  • Elsewhere in the South Anaheim submarket, 600 market-rate apartments are planned for the Brookhurst Triangle project at Brookhurst Street and Garden Grove Boulevard in Garden Grove.
  • With no new units delivering in first half 2012, net absorption in the South Anaheim submarket was moderate at 89 units.
  • Second quarter submarket vacancy was 4.4%, down 10 basis points from the quarter before, down 160 year-over-year.
  • Respective second quarter average asking and effective rents were $1,414 and $1,339, up 1.3% and 1.5% for the quarter following smaller gains the quarter and year before.
  • Outlook. In the face of no new supply, modest positive absorption should persist over the remainder of 2012. Reis calls for a year-end count of 145 units.
  • Vacancy is expected to close 2012 at just 4.0%. Respective gains of 3.5% and 4.8% are projected for the asking and effective average rents for the year.
  • The Platinum Triangle, with thousands of units planned and permitted, bears watching as the economy improves. Renewal of development agreements suggests that the development planned here will be forthcoming, even if not quickly.

Other Anaheim/North

  • No apartment projects completed construction in the North Anaheim submarket since 250 units came on line in 2009. No construction was underway per report date.
  • Only one apartment project is on the planning list—225 units at an unnamed development with an unassigned start date at 200 N. Lemon Street.
  • Total first half 2012 net absorption in the North Anaheim submarket was 128 units. The second quarter total alone was 24 units.
  • Second quarter vacancy was 4.1%, down 20 basis points for the quarter, down 200 since second quarter last year.
  • Respective asking and effective average rents closed the latest quarter at $1,281 and $1,254, up 0.7% and 0.9% for the period, up 1.7% and 2.3% since year-end following gains of 1.4% and 1.8% all told in 2011.
  • Outlook. Reis expects modest positive net absorption for the remaining two quarters of 2012 along with a decline in the vacancy rate to 3.8%. Strong rent growth—gains of 3.8% and 4.8%, respectively, for the asking and effective averages—is expected for the year.

South County/Mission Viejo

  • No market-rate apartment units have completed construction in the large Mission Viejo submarket since 402 units completed in early 2009. No apartment projects were under construction per report date.
  • Single-family. “Luxury home builder Toll Bros. Inc. has bought into a giant master-planned community planned by Shea Homes in Orange County’s Lake Forest,” the AP reported in June. “The development will include nearly 2,400 homes and apartments on about 400 acres.”
  • More. “Once complete,” reports Marcus & Millichap, the Toll Bros. development “will put downward pressure on Class A rents in the submarket as renters face more housing options.”
  • El Toro/Great Park—update. Lowe Enterprises has been selected “to help turn a 100-acre parcel of largely vacant land at the former El Toro Marine Corps Air Station in
  • Irvine into a mixed-use project,” the Business Journal reported in June. “The county-owned site has the potential for a variety of retail, hotel, office, apartment, and other uses.”
  • More. Long in the works, Great Park Neighborhoods, a component of Great Park, Lennar’s massive redevelopment of El Toro Marine Corps Base, broke ground (for single-family) in late January in a northern section of this submarket adjacent to Irvine.
  • More. Phase I, approved by the city last year, includes 5,000 single-family homes and 1.2 million square feet of commercial space. Planning also includes 544 apartments, it was reported earlier.
  • Several miles to the southeast of Great Park, the 320-unit Los Alisos Apartments complex (with 272 market-rate units) remains in planning stages for a site at Los Alisos Boulevard and Marguerite Parkway.
  • Total first half 2012 Mission Viejo submarket net absorption was zero (and was zero for both quarters as well). Last year’s total was plus 235 units.
  • Second quarter vacancy was 3.1%, same as a quarter earlier, down 70 basis points year-over-year.
  • Respective asking and effective average rents for the quarter were $1,621 and $1,590, up 0.9% and 1.1% for the period following an essentially flat performance the quarter before—on the heels of respective gains of 2.3% and 2.8% all told in 2011.
  • Outlook. The market will tighten additionally by year-end as absorption again turns positive, albeit in small volumes, in the second half of the year. Vacancy is forecast to end 2012 at 2.8%. Respective growth rates of 2.5% and 3.0% are projected for the mean asking and effective rents for 2012 all told.
  • The redevelopment of the El Toro base in the form of Great Park and Heritage Fields bears watching over the long term.

Other

  • The 125-unit Union Place market-rate project in Placentia (in the Placentia/Northeast Anaheim submarket), the first in that city in a decade, according to the Register, will complete construction this November.
  • More. Since opening in March, 52% of the first 80 units have been rented, the source reported in late July. A rental range of $1,900 to $2,300 is cited.
  • Commentary. “There is strong demand for, yet limited supply of, three-bedroom rentals in Placentia, as families are drawn to the city’s highly-regarded school district, parks and recreation facilities and easy access to the region’s job centers,” an executive with Resmark Investments said in a statement.
  • “Walmart is opening two locations in Huntington Beach . . . as part of a larger expansion in Orange County,” reports Marcus & Millichap. “Jobs created by the stores will aid Class B/C apartment absorption in the adjacent submarkets of Westminster/Fountain Valley and Buena Park, as workers seek rentals with a short commute while avoiding the higher cost of apartments in Huntington Beach.”
  • Vineyards Development Corporation’s 271-unit Met at South Coast in the MacArthur Place area within the North Santa Ana submarket was approved in April, the Register reported at the time.