Stable Multifamily Vacancy Supports Continued Rent Growth in Orange County

Property fundamentals in the Orange County multifamily market remained stable during the second quarter, as delivery totals thus far in 2025 have been below historical levels. The limited addition of new inventory has likely been a contributing factor to the pause in market shifts during the first and second quarters. The vacancy rate has stayed within a roughly 100 basis point range since 2015, so a lack of quarterly movement is common. Rents improved from the first quarter and long-term growth has still been steady with an increase of 2.1% over the past year. Some submarkets, such as Huntington Beach and Newport Beach, have continued to outperform, with asking rents rising by more than 5% in the past 12 months alongside vacancy improvements.

Sales velocity accelerated in recent months, with a handful of properties trading during the second quarter after no significant transactions in the opening three months of 2025. This uptick involved a diverse mix of properties, primarily at the extremes of the quality spectrum. Two-thirds of year-to-date sales were Class C assets, the majority of which traded in Santa Ana. The remainder were top-tier assets, with a median price of $572,300 per unit, a record high for Class A in Orange County. Fueled by peak pricing on high-end properties, overall pricing has improved, with the year-to-date median price rising nearly 5% from 2024 to $378,300 per unit. Cap rates averaged 5.1% during the second quarter, and have remained in the low-5% range since 2023.

Looking ahead

After mostly stable performance in recent periods, a few potential shifts in the market are possible during the second half of the year, as completions are projected to spike with several major projects coming online. Projects totaling approximately 4,000 units are scheduled for completion in 2025, a six-year high for Orange County. The current construction pipeline currently represents 2.5% of total inventory, slightly higher than in Los Angeles County, but lower than levels throughout the rest of Southern California. The resulting increase in inventory may place upward pressure on vacancy conditions, but local vacancy has historically shown resilience during periods of rapid supply growth, and the rate is not expected to exceed 4.7%. Asking rents are forecast to continue rising, and the Anaheim and Santa Ana areas should outperform, while the rapid rent growth in the northern coastal submarkets may begin to moderate by year's end.

Properties should continue to change hands through the end of the year, though the upcoming spike in new unit deliveries may have an impact on sales activity. Still, total sales for the full year should surpass the limited levels recorded in 2024. As the number of projects being completed each year has risen, there has been a steady decrease in the number of properties that change hands. Once the development pipeline returns to historical norms, allowing room for rents and vacancies to trend more favorably, investment activity will likely return to more typical levels between mid-2026 to 2027. With interest rate cuts potentially on the horizon in the second half of 2025, additional deal activity may emerge for opportunities that had previously failed to pencil. Cap rates are expected to remain relatively stable through year-end.

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