Multifamily Fundamentals in Orange County Improve Ahead of Surge in New Supply

The Orange County multifamily market posted improved operating conditions during the third quarter. The vacancy rate ticked down slightly, now matching levels recorded one year earlier. Rent growth picked up from the second quarter to the third quarter, with submarkets like Santa Ana and Anaheim leading the market, recording annual increases of 2.4% and 3.8%, respectively. A modest pace of deliveries helped to drive these improvements. Projects totaling roughly 1,500 units have come online to this point in the year, down from 2,800 units in the same period of 2024. Most of the new apartments that have been completed in 2025 are located in either Irvine or Stanton. Approximately 450 units have come online in Irvine year to date, while deliveries of 300 units were posted in Stanton during the same timeframe.

Transaction activity was light during the third quarter after an uptick in sales during the preceding period. Total sales during the past three months are aligned with the limited levels recorded in the second half of 2024 and first quarter of 2025. The transaction mix has remained consistent throughout the year, with Class C properties accounting for more than half of the total transactions, and the remainder consisting of an even mix of both Class A and Class B assets. Pricing has softened, with the median sale price in 2025 at $311,300 per unit, down 14% from last year. Santa Ana still accounts for the greatest share of activity this year, though the most recent sales have taken place in Huntington Beach and Tustin, two areas that have traditionally contributed a smaller share of transactions in Orange County.

Looking ahead

Shifts in multifamily operating conditions in Orange County are expected to be mixed through the end of the year, with rents improving while the vacancy rate inches higher from current levels. Rents are expected gain some additional ground, with the increase in new units that command higher rents being offset by operators who keep rental increases minimal to support occupancies. Class A apartments will endure rising competition from new construction, which will likely push vacancy higher, but increases should be modest. While top-tier assets are slated to come online at a rapid clip in the coming months, demand for these units has been elevated during the past year, a trend which should continue. Deliveries are set to spike in the fourth quarter, though the effects of these new units coming to market will not have a major impact on the market until next year when these properties stabilize.

Multifamily sales activity will likely remain light through the end of the year, with sales totals for the full year projected to closely track levels recorded from each of the prior two years. The rise in annual completions has coincided with a gradual decline in transaction count, suggesting that rising inventory levels may have temporarily softened some investor interest. Once the development pipeline begins to cool in 2026, there may be a corresponding uptick in the number of properties that trade hands, though investment sales activity is not anticipated to return to historical norms until later in 2026 or 2027. Cap rates are expected to remain fairly steady, repeating long-term regional trends. Anticipated declines in interest rate could support the investment markets if lower borrowing costs could allow more deals to pencil.

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