The Inland Empire’s hot apartment market got even hotter in 2021, with the biggest rent hikes in the nation, numbers from four leading apartment trackers show.
At the same time, a year-long dive in Los Angeles and Orange county lease rates may be ending as rents turn the corner and vacancies level off.
The Inland Empire “is a performance superstar, not just for the region but also for the nation,” said Greg Willett, chief economist for Dallas-based apartment tracker RealPage.
“The Inland Empire, Sacramento and Phoenix have been leading all markets for rent growth for the past few years, and the pandemic has only accelerated that trend,” added Yardi Matrix’s April multifamily housing report.
L.A. County, meanwhile, “appears to have moved past bottom for the moment, with occupancy stabilizing and rents up on a month-to-month basis,” Willett said.
And Orange County’s apartment market “hits the middle ground between what’s happening in the Inland Empire and in Los Angeles,” he said. The Orange County market “now is back in relatively good shape and should sustain some momentum moving forward.”
The numbers are based on first-quarter surveys by four apartment research firms: RealPage, CoStar, Moody’s Analytics Reis and Yardi Matrix.
All four indexes showed falling rents since the spring of 2020 in L.A. and Orange counties. Behind those numbers was an apparent eastward migration of home-bound tenants in search of more space and lower rent.
That migration boosted demand for Riverside and San Bernardino county rentals, leading to quick turnarounds and waiting lists for vacant units.
“I cannot remember a time when we had this much demand and its impact on rents and vacancies,” said Randall Lewis, executive vice president of Lewis Management Co., which manages about 11,000 apartments, mainly in the Inland Empire.
The average apartment rent in the Inland Empire was $1,662 a month during 2021’s first quarter, up $130 a month, or 8.5%, from the year before.
Last quarter’s 8.5% growth rate was the biggest in the Southern California News Group’s composite index since at least 2010 — and the biggest in CoStar’s data since at least 2000.
Yardi and RealPage both listed the Inland Empire as having the nation’s biggest percentage gains in rent this year. Moody’s Analytics Reis listed it as having the second-highest year-over-year rent gain.
A year ago, the Inland Empire had the 26th-highest rent among 82 U.S. metro areas tracked by Moody’s Analytics Reis. This year, it moved up to 21st-highest among those 82 metros.
Yardi figures show Inland Empire rents increased 31% over a five-year period, almost triple the national rate.
“The rental market in the Inland Empire is extremely strong,” Lewis said. “This is fueled by the ability of many people to work from home, as well as the cost advantage of the Inland Empire vs. closer-in markets. Other factors that play into this are a growing job base in the Inland Empire, which produces more demand, as well as demographic forces, which are favorable for the rental … markets.”
State employment figures show employment levels continued rising in Riverside and San Bernardino counties through most of the pandemic.
Vacancy changes are even more striking.
One year ago, all three areas had pretty much the same vacancy rate: 4.1% in the Inland Empire, 4.3% in Orange County and 4.4% in L.A. County.
Since then, L.A. County’s vacancy rate rose to 5.2%, and the Inland Empire’s vacancies fell to 2.4% — the lowest rate in at least 11 years. Orange County’s vacancy rate fell incrementally through the pandemic, dropping to 3.6% last quarter.
“The (Inland Empire’s) existing apartment stock is jam-packed full,” Willett said.
Few new rentals
Inland Empire rents, meanwhile, are likely to continue outpacing the rest of the region since apartment construction hasn’t kept up with demand.
Almost 39,000 new apartments are under construction in the four-county region, according to RealPage. But just 6% — or about 2,400 units — are in the Inland Empire, even though the area accounts for about 18% of all rental units, U.S. Census figures show.
Orange County, by comparison, which accounts for 16% of the region’s rentals, has about 7,400 new apartments under construction. L.A. County, with 66% of all local rentals, has about 29,000 new units under construction.
The pace of inland apartment construction will pick up in the next two years, Lewis said. But until it does, rents will keep rising, said Willett.
“With only about 2,400 units under construction, occupancy (in the Inland Empire) is going to remain very tight in the near term,” Willett said.
Signs of recovery
Meanwhile, signs of recovery are starting to turn up in Los Angeles and Orange counties as well.
The average rent for an L.A. County apartment was $2,085 a month during 2021’s first quarter. That’s down $77 a month, or 3.6%, from the year before and marked the fourth straight year-over-year decline in L.A. County rents.
But it’s up $4 a month from the final quarter of 2020, rising on a quarter-to-quarter basis for the first time since 2019.
“We are seeing rates tick up a bit,” said Paul Julian, a principal with Advanced Real Estate Services, an Irvine-based apartment owner with about 10,000 units stretching from Newport Beach north to Azuza and east to Redlands.
Fred Sutton, the California Apartment Association’s L.A. spokesman, said he’s not aware of any urban L.A. property owners raising their rents. But vacancies stopped rising, he said.
“People are no longer turning in their keys and saying, we’re leaving,” said Sutton. “That was a real phenomenon” during the pandemic.
Orange County’s average rent increased for a third straight quarter in the January-through-March period, rising to a record $2,108 a month. That’s up $14 a month, or 0.7%.
It’s the first time in nearly five years that an average Orange County apartment was more expensive than in L.A. County.
Suburban L.A. County was less impacted by the pandemic while city centers were hit hardest, observers said.
Free-rent offers and other concessions are up in L.A. County’s urban core, Julian said.
“You’re looking at just about two months of free rent,” Julian said. “Whereas in the suburban market, we see less of that.”
The pandemic likely accelerated the search among the millennial generation for “hipsturbias,” or suburban enclaves offering shopping, dining and entertainment, he said. Suburban L.A. County, as well as the parts of Orange County and the Inland Empire, have benefitted from that trend, he said.
“Many (millennials) are having children. They want more space, and they need more space. They’re looking at schools,” Julian said.