Orange County real estate trends show vacancies rising slightly from 3.9% in the first quarter of 2024 to 4% by the end of the year, according to Moody’s CRE. That’s still tight compared with the forecasted national average, 5.6%. Asking rents, meanwhile, are forecast to hold relatively steady from 2023. 

Workforce housing is in demand

In the first quarter of 2024, the vacancy rate for Class B and C properties in Orange County was exceptionally low: 2.6%, according to Moody’s CRE.

The vacancy rate for Class A properties was 5.5%, and up slightly from the end of last year. That’s still far from elevated—it’s in line with the national average, according to Moody’s CRE. 

“Still, the tight supply of workforce and affordable housing properties shows why they tend to see very durable demand from renters,” Krasinski said. 

With Class A buildings accounting for most of the new construction in Orange County and Los Angeles, those properties “are certainly getting supply-side pressure,” said Lu Chen, Director and Senior Economist at Moody’s CRE. “However, with average rents above $2,000 at Class B and C properties, affordability is pressuring their rent growth.”

Interest rates remain elevated

With inflation still above the Federal Reserve’s 2% target, prospects for a reduction in interest rates remain uncertain. Investors seeking apartment loans may want to consider options that would give them more flexibility to refinance when interest rates decline, said Lynnette Antosh, Senior Regional Sales Manager with Chase.

Orange County multifamily cap rates have risen slightly in response to the elevated interest rate environment, but the impact on property values hasn’t been dramatic enough to create opportunities to buy at a discount, Antosh said.

Still, some investors are preserving liquidity, getting prepared if opportunities arise, she said. 

Inflation and insurance 

Property owners are contending with higher expenses after a period of elevated inflation. In particular, insurance has grown significantly more expensive. While it’s a cost that seems impossible to control, investing in regular upkeep that keeps a property in good shape can help, Krasinski said. Preventive maintenance can head off larger, more expensive repairs, and it can factor into insurance. 

“Insurers will look at how recently you’ve replaced the roof, whether a building has copper or galvanized pipes, or whether the electrical system has been upgraded,” he said. 

Adding ADUs

Finding ways to create more cash flow at a property can be a challenge. One potential opportunity: accessory dwelling units (ADUs).

ADUs turn underutilized space at a property into a new apartment. They’re often built as detached units or converted garages and also known as granny flats, in-law suites and garage apartments. There are regulations to navigate, and it requires an upfront investment. But in areas with low vacancies like Orange County, there’s considerable demand from renters, Antosh said.