Angela L. Kleiman
Director, President & Chief Executive Officer at Essex Property Trust
Good morning, and thank you for joining Essex's second quarter earnings call. Barb Pak will follow with prepared remarks; and Rylan Burns is here for Q&A.
We are pleased to report a strong second quarter with core FFO per share exceeding the high end of our guidance range by $0.05. As a result, we have our second notable increase to our full year guidance. Today, my comments will focus on underlying drivers to our outperformance and operational highlights, followed by an update on the investment market.
Starting with operating fundamentals. Year-to-date, demand for West Coast multifamily housing has exceeded our expectations, particularly in Northern California and Seattle regions. While we've traditionally relied on the BLS to assess housing demand, the reported data have not correlated to the strength we're experiencing on the ground. As such, we've analyzed alternative demand indicators from third-party sources for better insights into the key drivers supporting housing demand. The first of these is job openings at the top 20 technology companies. In June, openings in the Essex markets total over 17,000 jobs, which represent a 150% increase from the 2023 trough. While we have yet to return to the historical average of 25,000 jobs, the steady improvement so far has generated incremental demand in our market and is a good precursor of the recovery, particularly in Northern California and Seattle.
Another factor contributing to West Coast housing demand is migration. Real-time data using Placer.ai shows a gradual improvement in domestic migration patterns on the West Coast. This is illustrated on Page S-16.1 of our supplemental. This data suggests that workers are relocating back to the coastal headquarters, generating a shadow of demand similar to a new job being added. Additionally, this year, Northern California has positive net domestic migration for the first time since pre-COVID.
As for supply dynamics, limited new housing combined with favorable rental affordability continued to underpin our market fundamentals. For example, the rate of income growth has outpaced rent growth, which has improved affordability metrics in our markets. Additionally, it is 2.8 times more expensive to own than to rent in our markets today compared to 1.7 times back in 2019 when interest rates were near the historical low. Even if mortgage rates were to revert back to the 2019 level, homeownership in our markets will still remain significantly less affordable than renting.
Turning to property operations. We experienced a solid peak leasing season with blended rent growth for same-property portfolio of 3.4% for the quarter. Blended rent growth would have been 4.5%, so 110 basis points higher if we exclude LA and Alameda, the two counties with elevated delinquency-related turnover. As for regional highlights, Seattle has been our best performing market today, achieving a 4.9% blended rent growth, while maintaining strong occupancy level of 97% in the second quarter. The east side, which has been less impacted by supply than the CBD, led this region with 5% blended rent growth.
There are two key factors that contributed to this strong performance. First, relative to our other regions, Seattle has the strongest job growth. Second, the new supply has been less impactful as timing delays resulted in fewer deliveries in the first half of the year. These two factors have led to a prolonged seasonal peak in that this market typically peaks around late June, but this year, the peak occurred a month later, around the end of July. Northern California was our second best performing region, achieving a 3.3% blended rent growth in the second quarter and occupancy of 96.3%. San Mateo and San Jose were the notable outperformers at around 4% growth with Alameda County pulling down the regional average by 80 basis points due to delinquency turnover and the continued elevated supply in Oakland. Generally, rents in this region peaked around early July consistent with historical patterns.
Lastly, Southern California continues to be a steady performer. We achieved 2.8% blended rent growth for the quarter, which would have been 200 basis points higher if we were to exclude LA. In similar fashion, Southern California's average occupancy of 95.7% for the quarter was tempered by Los Angeles, with all other markets at or above 96% occupancy. Excluding LA, Southern California's rents peaked in late July, consistent with historical patterns. As we begin the third quarter, our portfolio is well positioned with average concession of less than two days and occupancy is healthy at 96.2%. We are prepared to shift to an occupancy strategy as appropriate, while maintaining the optionality to minimize rental growth.
Finally, on the transaction market. In the second quarter, there was a significant increase in investor demand for well located newer multifamily properties on the West Coast. In contrast, the number of marketed properties for sale remained low. This combination has resulted in a highly competitive bidding process and a compression in cap rates in some markets. Over the past few months, Essex has selectively procured three high quality communities in the Bay Area. All three of these investments have significant upside potential based on the favorable fundamental backdrop and efficiencies from our operating platform. We are pleased with the progress to date with over $500 million in acquisitions closed and are optimistic more opportunities will arise in the near future. As always, we remain disciplined and focused on maximizing shareholder value and enhancing the growth profile of the company.
With that, I'll turn the call over to Barb.
