Essex Property Trust, a large Southern California landlord, says its new tenants are agreeing to leases that are 13.5% pricier than when the pandemic started.
If you need much more convincing that rents are rising significantly this summer — and I’ll admit I did — the real estate investment trust’s performance update to its investors confirmed what industry surveys had been suggesting. Big landlords who own top-flight apartment complexes are finding well-to-do tenants who are willing to pay up.
Now Essex is a bit of an anomaly, as it primarily caters to well-paid renters on the West Coast. The publicly traded REIT controls 22,500 units in Southern California, from Santa Barbara to San Diego, and is also known as a major backer of anti-rent-control efforts. Its eye-catching boosts to revenues and new lease rates this summer are an example, much like surging home prices, of how some folks are doing very well in the pandemic era.
In Essex’s mid-summer update it said rent collected in July and August was up 9.5% year-over-year. That’s a big shift from the spring quarter when revenues were rising at a 2% annual rate and from the winter quarter when rents were falling at a 5.8%-a-year pace.
A key reason behind this financial rebound is new business. “Effective” rent on newly signed leases — that’s minus any incentives tenants got — soared.
Ponder this metric of Essex’s rebound. It said new tenants signed contracts in August for rents 13.5% higher than what the landlord charged just before the pandemic started. This same metric showed only a 1.6% increase through June 2021. And three months earlier, starting rents were down 2.4% vs. pre-coronavirus rates.
Essex is not alone, but it’s certainly a trend leader around Southern California.
ApartmentList’s measure of what the region’s landlords are charging shows iin the 12 months ended in August, rents in San Bernardino County rose 15.1%, the No. 1 gain of 50 big U.S. counties; Riverside County rose 12.3%, No. 3; San Diego County rose 5.3%; Orange County rose 4.3%; and Los Angeles County fell 2.9%.
In Northern California, where Essex has 19,000 units, rent declines are shrinking — but declines are smaller.
Rent collected was down 2.9% year-over-year in July and August but that was an improvement from losses of 8.4% in the spring and 10.9% in the winter. New lease rates were down 5.8% through August in the pandemic era compared with a 13.8% decline in spring and 16.2% dip in the winter.
Or consider Seattle, where the landlord has 10,000 units. Rent collected was down 2.3% year-over-year in July and August and down 7% in spring and 0.8% in the winter. Net new lease rates are up 8.5% in the pandemic era vs. the spring when they were 6.8% lower and down 14.5% in the winter.
Essex ties these rent reversals to three markets where jobs are plentiful, savings are high and new competitors limited. Plus, lofty home prices are convincing some folks to remain renters — keeping demand up for landlords. And throughout the pandemic, Essex has kept its apartments around 96% full.
“The escalating cost of homeownership, combined with greater rental affordability from the pandemic, has increased the financial incentive to rent. We suspect these trends will continue given muted single-family supply and limited permitting activity.” Essex CEO Michael Schall said in a July conference call.
“As we look around the West Coast, we feel great about what’s happening, and we expect good times to continue that consumer is super optimistic, they’ve saved money via COVID by not traveling and a variety of other things,” he said. “The millennials are forming households and there is a lot of hiring here on the West Coast.”
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
