New hiring is expected to lead to a decrease in apartment vacancies in California’s Inland Empire this year, making it the area’s first annual vacancy improvement since 2004, according to real estate services firm Marcus & Millichap.

By the end of 2010, multifamily vacancy is projected to decrease 50 basis points to 7.5%, following a 100 basis point jump in 2009.

The optimistic outlook for the Inland Empire’s multifamily vacancy rate follows improved fundamentals in the first half of 2010 that were driven in part by modest job gains, according to Encino, Calif.-based Marcus & Millichap.

However, the recovery is projected to continue at different paces in the two counties in the region, the company noted in its third-quarter report for the Riverside-San Bernardino market. Strengthened renter demand will most benefit densely populated submarkets along the western edge of the metro area, including South Ontario, Chino and Rancho Cucamonga.

Concession cuts expected
Positive net absorption is expected in those areas over the remainder of 2010, leading multifamily operators in close-in cities to begin to cut back on concessions as rents increase.

Communities far from major employment centers will continue to struggle with high vacancy rates, however, and will continue to offer concessions. Still, as renters reduce their living expenses by moving into the discounted complexes, apartment vacancy rates to the east and in the high desert region are expected to flatten later this year.

Severe market disruption during the downturn has challenged owners’ ability to operate profitably, presenting distress opportunities for bargain-seekers, according to Marcus & Millichap.

Major asset sales rise
Smaller, opportunistic buyers continue to explore outlying areas, where rent rolls have been slow to stabilize and owners cannot meet debt obligations. Smaller complexes purchased by less
sophisticated investors during the boom years comprise the bulk of the lender sales, but an increased number of larger properties
are trickling through the pipeline.

Over the last 12 months, assets containing more than 100 units accounted for 11% of sales, compared with less than 4% a year ago. With the median price for larger buildings falling 20% during the past year, more major cash investors will emerge in search of attractive deals.

Economists forecast that after more than 160,000 positions were cut locally over the past three years, employers will increase payrolls by 0.4% in 2010, or 4,300 workers.

Asking rents are projected to grow by 0.8% in 2010 to $1,014 per month, while effective rents will advance 0.7% to $955 per month. Last year, asking rents dropped 4.9%, and effective rents declined 6.9%, according to Marcus & Millichap.