5 Key Factors Driving Inland Empire Multifamily Growth in 2023
Discover the top factors propelling the Inland Empire's multifamily market growth, from strong population growth and housing demand to the region's strategic location and booming industrial sector.
The Inland Empire is poised for significant growth, driven by rapid population increases, demand for affordable housing, a flourishing job market, and a key location in the region. Find out why.
Strong Demographic Trends
Encompassing Riverside and San Bernardino counties, the Inland Empire is on track for significant growth in the coming years. It is projected that the region's population will increase by over 20% in the next 25 years, reaching a combined total of 5.7 million residents by 2048. This growth rate surpasses that of the rest of Southern California, primarily due to the Inland Empire's capacity for enhanced housing and job creation.
Specifically, Riverside County's population is expected to grow from 2.5 million in 2022 to 3 million in 2048, while San Bernardino County's population is projected to rise from 2.2 million to 2.6 million during the same time frame.
The area is anticipated to draw knowledge industries, healthcare, and biomedical technology jobs, further fueling its rapid expansion. Ongoing efforts to construct high-density housing near mass transit in cities such as Ontario, Rancho Cucamonga, and Montclair aim to attract a more economically diverse population. The Inland Empire is already home to the fifth-largest Latino population in the U.S., and its demographic makeup is expected to diversify even more over time.
Experts predict that the Inland Empire holds enormous potential over the next 25 years, attributing its success to robust job growth and increasing household income.
Rent Rates, Projected Growth
The Inland Empire's affordability makes it the most appealing rental market in Southern California. With an average effective rent of at least $500 per month lower than all major Southern California markets, according to a Marcus & Millichap report, the region is expected to see significantly more regional migration to Riverside and San Bernardino counties throughout 2023 and beyond, as mentioned above. This affordability, along with the rapid growth of the industrial sector, which will be discussed later, will further enhance leasing at apartment complexes.
Nonetheless, the Class A segment of the market may face some challenges as multiple large-scale projects are delivered throughout the year. This influx of new units could potentially push the Class A vacancy rate above 5% for the first time in roughly a decade.
In contrast, at the beginning of 2023, the Inland Empire's Class C vacancy rate was among the tightest in the nation, positioning lower-tier properties to offer stable cash flow for investors during a potential downturn.
Consequently, the Inland Empire is forecasted to lead Southern California markets in rent growth, increasing the mean effective rent to $2,340 per month in 2023. Because of the tight conditions in Class C communities, some renters may be effectively forced into Class B assets — which could lead to some larger multifamily investors targeting these properties.
Industrial Gains Create a Stronger Multifamily Market
The Inland Empire's industrial market has experienced a period of stabilization, with average direct rents increasing by only 0.3% from the previous quarter, compared to a 14% increase observed during the same period last year, a JLL report highlighted.
This growing industrial sector, particularly in logistics, has been a driving force behind the demand for multifamily properties in the region. The significant expansion of transportation and warehousing-related jobs has led to increased leasing activity in apartment complexes.
The incredibly strong demand for industrial space has spilled over into the multifamily sector, as workers looking for housing near their job sites contribute to the growing need for rental properties. As a result, the Inland Empire's multifamily market stands to benefit from the continued growth of its industrial sector.
New Construction Activity Hits a Peak
In 2023, the annual multifamily delivery volume in the Inland Empire is expected to reach its highest mark since 2007, expanding rental stock by 1.4%. Nearly all properties slated for completion feature upward of 100 apartments each, signaling a surge in development opportunities in the region.
While a significant rise in multifamily vacancy might be prevented by the Inland Empire's affordability and growing demand, again, Class A owners and operators should take care.
Despite the potential challenges around the development pipeline, the growing industrial sector in the Inland Empire is a great reason for renewed confidence. As more industrial jobs are created, the demand for housing options near job sites is likely to increase, driving further investment and development in the multifamily sector.
This growth presents an opportunity for developers and investors to capitalize on the region's expanding economy and growing population.
An Unparalleled SoCal Location
The Inland Empire's strategic location near major urban centers such as Los Angeles, Orange County, and San Diego makes it a prime choice for residents who work in these areas but are willing to relocate further afield in exchange for lower costs of living. Its extensive transportation infrastructure, including highways, railways, and bus routes, allows for convenient commuting to neighboring metros, attracting more workers to the region.
In addition to the lower cost of living, the Inland Empire offers an expanding job market in industries like logistics, as previously mentioned, and healthcare. This growth creates additional employment opportunities for residents and makes the region more attractive for those working in nearby areas.
The Inland Empire's ample land for development allows for housing and job creation opportunities that may not be available in other parts of Southern California. As a result, it can better accommodate an increasing population and workforce.
The Inland Empire also offers a variety of family-friendly neighborhoods, parks, and recreational facilities, making it an attractive destination for workers from neighboring areas who want to raise their families in a more suburban environment. With a strategic location, growing job market, and family-oriented communities, the Inland Empire continues to draw in residents from neighboring regions, contributing to the strong demand for multifamily properties in the area.
What’s the Catch?
It may seem too good to be true: The Inland Empire's strong population growth, affordable rental market, booming industrial sector, and strategic location make it an attractive destination for both residents and investors. While the ongoing development pipeline is, of course, of some concern for specific property types, the market by and large is set to perform going forward.
The region is poised for continued growth over the next quarter-century, with experts citing strong job growth, rising household income, and an expanding job market in industries like logistics and healthcare. The robust demand for multifamily properties in the area presents ample opportunities for investors seeking stable cash flow and long-term growth potential.
Financing opportunities are available for investors looking to capitalize on the Inland Empire's multifamily market, making it easier for them to enter this thriving region. By taking advantage of the various financing options, investors can secure the necessary funds to acquire or develop multifamily properties, further contributing to the region's growth and meeting the increasing demand for housing.
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