Essex Property Trust Expects 35% Rent Growth in Certain West Coast Markets

by REIT Wrecks on June 18, 2010

The REIT Week confab in Chicago is now over, and REITs of all stripes were reporting firming occupancies, better leasing activity, and stronger rents. The only weak spot appears to be suburban office properties, where landlords are still said to lack pricing power. Apartment REITs in particular were the beneficiaries of a strengthening economy. Roommates are actually feeling confident enough to split up and move back out on their own, and spare bedrooms are finally being turned back into offices.

Essex Property Trust is one apartment REIT that is absolutely pounding the table incredibly bullish on the rental market as well as its targeted West Coast market strategy. Essex is an Apartment REIT that owns 133 apartment communities totaling 27,143 units, with 585 units in development. 48% of the ESS portfolio is concentrated in Southern California, 30% in the San Francisco Bay Area and 22% in Seattle.

If you’re an apartment buff, you’ll know that roughly 58% of people between the ages of 18 and 34 are renters, and roughly 77% of people between the ages of 18 and 24 are renters. Both of these groups are growing at a rate not seen since the 1970s, according to data compiled by Piping Rock Partners:

At the same time, lack of construction financing is inhibiting new supply, and apartment deliveries could fall to post World War II lows:

Essex believes its portfolio will benefit from these trends, as well as the decline in the homeownership rate caused by a return to sane single family lending practices. Each 1% decline in the homeownership rate creates approximately 1.1 million “new” renter households, and Essex’s markets in particular still sport a huge spread between the cost of owning and the cost of renting. According to the REIT analysts at Stifel, this leads ESS to believe they will see a whopping 35% rental growth rate over the next four years in some of their markets. If so, that makes Essex’s 3.9% dividend yield look awfully cheap.

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