With the economy building momentum, job growth and household formation are creating stronger demand for rental housing, driving up apartment rental rates to new highs in Ventura County, according to a recent report from Ventura-based real estate consulting firm Dyer Sheehan Group.
Even with slower income growth, nationwide rents grew 4.3 percent in 2014, and Ventura County’s overall average rent in January 2015 was up 5.7 percent, to $1,623 per month. Despite a spike in multi-family housing construction, occupancy has continued to tighten, leading to the lowest U.S. vacancy rate in 15 years, at 4.7 percent. In Ventura County, there are very few apartments available to rent, with a current vacancy rate of only 2.8 percent. Local vacancy has also remained below 3 percent for nearly two years.
While more Millennials are entering the housing market, many are opting to rent instead of buying. Most are delaying buying homes due to insufficient income or an inability to make a down-payment. A lack of confidence in the housing market as well as certain lifestyle preferences are taking priority.
Tight loan qualification standards have further crippled first-time homebuyers. Many young people will remain in rental housing for a decade or longer after leaving their parents’ homes, the report states. Apartment construction has not kept pace with this increased demand, resulting in rapid price escalation.
Thousand Oaks and Westlake Village reported the highest overall rent in the county, at $1,804, up 4.8 percent from the previous year, according to the report. However, rents for all unit types in Thousand Oaks, except studios, actually fell during the second half of 2014, after booking steep gains earlier in the year.
Camarillo had a similar trend, with overall rents rising 5.9 percent in the first half of 2014, and then dropping 3.1 percent later in the year with prices settling around $1,642.
Oxnard and the Port Hueneme market area had the strongest rent growth, up 7.1 percent for the year to $1,504. Three-bedroom rents shot up 11.1 percent, and one bedroom rents grew by 10 percent, but the most dramatic rent increase in the county was for studio units in Oxnard, which soared 14.6 percent. The rise was skewed upward by the addition of a new property with 52 studios and steep rent hikes at a waterfront property, the report noted.
The rising prices of rents stirred multi-family investor activity in Ventura County through 2014. A total of 31 deals were transacted to the tune of about $184 million, up 15 percent from the 27 sales reported in 2013, and up 55 percent from the 20 sales in 2012, the report states. While deals were up, total 2014 sales volume was down big time from $300 million in 2013. The steep decline is due to the composition of properties that traded, according to the report.
In 2013, there were five sales of properties with 50-plus units, three of which were more than 300 units. In 2014, there were four sales of 50-plus unit buildings but only one was more than 300 units.
There has been a dramatic increase in apartment development activity over the past year, with additional units making their way through the planning approval process. While this new supply may create short-term vacancies in nearby properties during initial lease-up, the units should be absorbed quickly, given the persistent low vacancy rate in the county, which has remained below 3 percent for nearly two years. New rental units may slow the pace of rent price appreciation, but this additional supply could easily be offset by the increase in demand driven by Millennials, who finally have the income and confidence to leave their parents’ nest and form households
Dyer Sheehan forecasts multi-family investment activity to remain strong in 2015, but that cap rate compression is likely to occur once interest rates begin to rise. Property owners who have been holding on to property for more than a decade might want to think about a deal this year, according to the report.
Deal of the Week
• A 28-unit apartment building at 127 & 145 W. Santa Barbara St. in Santa Paula recently traded hands for $3.7 million. The property consists of two 14-unit complexes. Nick Henry of the Channel Group represented the sellers, S&G Santa Paula.
The buyer was a private investor represented by Jeff Louks with Marcus and Millichap. The Buyer assumed S&G’s existing first trust deed loan in the amount of $2.5 million. S&G also carried back an 18-month second loan in the amount for $320,000 to help facilitate the sale, according to Henry.
• In the Business Times’ Jan. 30 Dealmakers issue, the 25,000-square-foot-plus lease signed by Wholesale-grocery chain Smart & Final brokered by Pam Scott of Lee & Associates was overlooked. The deal in Goleta’s new Hollister Village development would have come in at No. 8 on the list of largest leases.