Essex Prop. Trust on Seattle Apartment Building Investment: rents up 6.5%, NOI +11% but 10k new units coming

My Exec Sum: Seattle apartment building investment results from Essex Property Trust Q1 call:

  • Seattle demonstrated exceptional same-store NOI and revenue growth of 11.2% driven by very limited supplies of housing and job growth that exceeds national averages
  • On operating expenses we expect a 2.3% increase for the second quarter ’12 over the second quarter in ’11
  • Seattle rents were up 6.5% compared to the first quarter of 2011. So depending on the submarket, we are now 4% below to even with our prior rent peaks.
  • renewal offers for June and July averaged +6% to 8% in Seattle
  • As of April 30, its occupancy was 96.1% with a net availability of 5.1%.
  • We view this turnover activity (50-55% YoY) as healthy because it provides us with more opportunity to grow rents. Additionally, we only saw a nominal increase in move-outs due to home purchases and affordability.
  • Cap rates continue to be aggressive in the coastal markets, ranging from 4% to 4.5% for A props in A locations and from 4.5% to near 5% for B props in A locations.
  • Seattle multifamily deliveries, estimated for 2012 to be 0.5% of stock, or 1,800 units, growing to 1% of stock, 3,800 units, in 2013 and 1.1% of stock, 4,400 units, in 2014

Job picture continued to be strong at Seattle. We saw more jobs than expected added during the quarter and have raised our forecast for 2012 to 2%. Property managers continue to report strong demand from employees of Microsoft and Amazon. Office absorption remains positive as another 650,000 square feet were leased during the quarter. We also saw a surge in industrial demand at the south end of the region.

[1,800 + 3,800 + 4,400 = 10,000 new Seattle apartment units in next 3 years]  The other housing supply risk relates to for-sale housing production. We continue to believe that affordable for-sale housing is a significant threat to apartment rent growth. Our for-sale supply expectations remain muted in our coastal markets, largely due to high median home prices and restrictive lending practices, which should be beneficial to Essex. Seattle single-family deliveries are estimated to approach 0.9%, or 6,300 units, in 2014.

See more on Essex’s Q1 apartment building investment results including Northern and Southern California on Seeking Alpha: Essex Property Trust’s CEO Discusses Q1 2012 Results



Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.