As the multifamily sector continues to see improved market fundamentals, Essex Property Trust remains bullish for the future of its West Coast markets. According to a recently released investor presentation, the San Mateo, Calif.-based company, which owns and operates apartment buildings in Seattle, Southern California and the Bay Area, has seen significant growth during the third quarter of the year.
“The economic recovery on the West Coast has led to a significant increase in demand for housing and September net effective rents are 6.4 percent above pre-COVID-19 levels for our portfolio,” Michael J. Schall, President and CEO of Essex, said. “The strong recovery in fundamentals and rents has led us to increase our guidance for the third time this year. We remain cautiously optimistic that the West Coast is still in the early stages of the recovery with office re-openings and associated economic growth representing an additional catalyst for continuous rental demand.”
In the third quarter of the year, the multifamily investment group reported continued growth, with an annualized net operating income of more than $990 million. According to Essex, Northern California accounts for 41 percent of the total net operating income, Southern California accounts for 43 percent and Seattle contributes approximately 17 percent.
Improved financial performance is in large part due to the recovery of Essex’s West Coast markets, which is making the region more desirable to renters. According to Essex, West Coast markets have recovered 63 percent of COVID-19 related job losses to date. Many of these jobs come from the nation’s top tech companies, which have increased job openings by 152 percent. Of all tech jobs in the nation, California and Washington account for 52 percent of the total job openings nationally.
Overall, some of the largest tech companies are expanding their reaches across the West Coast markets, leasing an additional six million square feet and investing $1.6 billion in office space throughout the course of the COVID-19 pandemic. For instance, the City of San Jose approved Google’s 80-acre office development in downtown, which is set to begin construction in 2022. Once completed, the site will be home to 7.3 million square feet of new office space. More recently, Apple also unveiled plans for a 550,000 square-foot office expansion in Culver City as well as a plan to add 3,000 employees to the region by 2026.
Market performance is also directly impacted by rising house prices in California and Seattle. In 2021 alone, housing prices in California and Washington have increased by 17 percent and 16 percent, respectively. In comparison, the average cost to buy a home in the U.S. has increased just 13 percent. Because of this, It is approximately two times more expensive in Essex’s West Coast markets to buy a home than it is to rent. Additionally, it is three times more expensive to own a home on the West Coast than it is across the U.S. on average.
Despite renting being cheaper overall, rental rates are also continuing to grow across the West Coast. The report from Essex showed that average rental rates in the West Coast region are $2,525 per month. In comparison, rent in the U.S. averages approximately $1,202 per month, according to the most recent data from the U.S. Census Bureau. This is primarily due to the lack of supply and increase in high paying tech jobs across the West Coast. These fundamentals lead Essex to believe the West Coast markets will continue to be of value to investors in the long term, with total new permits at less than one percent.
Overall, Essex anticipates improvements in its West Coast markets, allowing the company to continue developing and acquiring property across the region. Year-to-date, the company has acquired $225.8 million worth of multifamily housing along the West Coast. Year-to-date dispositions total $330 million.
In total, the company owns and operates approximately 244 apartment communities consisting of 60,000 residential units between its three West Coast markets.