Multifamily REITs Point To Pricing Outperformance in California and Coastal Markets
Supply conditions in local markets, rather than broad national demand trends, are increasingly driving apartment performance across the United States, according to a new RealPage analysis summarizing first-quarter earnings commentary from major public apartment REITs. California stands as a beneficiary of this trend.
Across operators, including AvalonBay Communities, Camden Property Trust, Equity Residential, Essex Property Trust, Mid-America Apartment Communities and UDR, management teams pointed to a multifamily market increasingly divided between supply-constrained Coastal metros and Sun Belt expansion markets still absorbing elevated deliveries.
The report found that deliveries remain a dominant near-term factor shaping performance, particularly in high-growth Sun Belt metros such as Austin, Dallas, Atlanta, Charlotte and Phoenix, where heavy new Class A product continued to pressure effective asking rents during the first quarter.
"New lease pricing continues to reflect supply pressure in several markets, but we are seeing sequential improvement as absorption improves," Brad Hill, CEO of Mid-America Apartment Communities, said.
Several REITs emphasized that conditions are becoming increasingly submarket-specific rather than metro-wide, with performance varying significantly by location and property vintage. Phoenix was frequently cited as an example of that divergence, with leasing activity improving overall but pricing still constrained in submarkets facing concentrated late-cycle deliveries.
By contrast, coastal operators highlighted limited new supply as a major tailwind. Management teams with exposure to Northern California, Southern California, New York and Boston said that permitting challenges, elevated construction costs and regulatory hurdles continue to suppress new development starts, supporting stronger pricing conditions as renter demand stabilizes.
"Permitting activity remains at historic lows in California, and we expect new housing deliveries to remain low for several years," said Angela Kleiman, CEO of Essex Property Trust.
Los Angeles and San Francisco were repeatedly cited as outperformers due to constrained supply pipelines and declining concessions in urban core submarkets, while Seattle was described as recovering more gradually because of lingering supply pressure. Additionally, Denver continued to lag other Western markets due to elevated recent deliveries.
Despite uneven rent growth, occupancy remained relatively stable across portfolios, generally holding in the mid-95% to mid-96% range during the quarter. Operators said strong resident retention has helped offset weaker new lease pricing, particularly in Sun Belt markets still working through elevated supply.
"Resident retention stands at an all-time high, driving strong renewal rent growth across the portfolio," said Tom Toomey, CEO of UDR.
Also, executives across the sector pointed to elevated mortgage rates and limited affordability in the for-sale housing market as factors helping sustain renter demand and reduce turnover.
Source: GlobeSt/ALM