Michael J. Schall
President and Chief Executive Officer at Essex Property Trust
Thank you for joining us today, and welcome to our second quarter earnings conference call. Angela Kleiman and Barb Pak will follow me with prepared remarks and Adam Berry is here for Q&A.
On today's call, I'll start with our second quarter results, which were driven by a strengthening economy and positive [Technical Issues] and also to underlie a robust recovery on the West Coast. I'll also discuss the status of reopening the West Coast economies and related factors concluding with an overview of the West Coast apartment transaction markets and investments. Our second quarter results were ahead of our initial expectations entering the year, as the economic recovery from the pandemic occurred faster than we expected. With a strong economy and high vaccination rates, we are now confident that the worst of the pandemic-related impacts are behind us.
As noted on previous calls, our strategy during the pandemic was to maintain high occupancy and scheduled rent, both necessary for rapid recovery. To that end, net effective rent surged during the second quarter, along with year-over-year improvement in occupancy, other income and delinquency. The recovery and net effective rents continued unabated in July and we are now pleased to announce that July net effective rents for the Essex portfolio have now surpassed pre-pandemic levels with our suburban markets leading the way. While the downtowns are improving, but still generally below pre-pandemic levels. Obviously these higher rents will be converted into revenue as leases turn and Angela will provide additional details in a moment.
Having passed the midpoint of 2021 and looking forward, we made a second set of positive revisions to our West Coast market forecast, which can be found on page S-17 of the supplemental. Driving the changes is an increase in 2021 GDP and job growth estimates to 7% and 5%, up from 4.3% and 3.2% respectively from our initial forecast. As a result, we now expect our average 2021 net effective rent growth to improve to minus 0.9% from minus 1.9% from the beginning of the year. To put this into perspective, consider that our net effective rents were down about 9% year-over-year in Q1 2021.
Given our current expectation of minus 0.9% rent growth for the year, year-over-year net effective market rents are now forecasted to increase about 6% in the fourth quarter of 2021. Cash delinquencies were up modestly on a sequential basis at 2.6% of scheduled rent for the quarter and well above our 30-year average delinquency rate of 30 to 40 basis points. The American Rescue Plan of 2021 provides funding for emergency rental assistance, which was allocated to the stage for distribution to renters for pandemic-related delinquencies. During the second quarter, collections of delinquent rents from the American Rescue Plan were negligible as the pace of processing reimbursements has been slow, since the program launched in March. We expect that to improve in the coming months.
We expect delinquency rates to return to normal levels over time as more workers enter the workforce and eviction protections labs on September 30 in both California and Washington. at this point. Only about $7 million of the $55 million in delinquent rent shown on page S-16 of the supplemental has been recorded as revenue. Given uncertainty about the timing of collections, no additional revenues are contemplated in our financial guidance.
Even with the approved job and economic outlook, the reopening process was gradual through the second quarter, with full reopening declared in mid-and late June for California and Washington respectively. The unemployment rate was still 6.5% in the Essex markets as of May 2021 underperforming the nation. Through Q2 we have regained about half of the jobs lost in the early months of the pandemic. Employment in the Essex markets dropped over 15% in April 2020 and while job growth in our markets outpaced the nation in the second quarter, we are still 7.9% below pre-pandemic employment, compared to 4.4% for the U.S. overall.
We see the gap is an opportunity for growth to continue in the coming months, as we benefit from the full reopening of the West Coast economies. We believe that many workers that exited the primary employment centers during pandemic-related shutdowns and work from home programs, will return as businesses reopen and resume expansion that was placed on hold during the pandemic. As we proceed through the summer months, we edge closer to the targeted office reopening dates set by most large tech employers in early September. As recent reports about Apple and Google suggest, the COVID-19 Delta variant could lead to temporary delays in this reopening process. Our survey of job openings in the Essex markets for the largest tech companies continues to be very strong as we reported 33,000 job openings as of July, a 99% increase over last year's trough.
New venture capital investment has set a record pace this year with Essex markets once again leading with respect to funds invested providing growth capital that supports future jobs. Generally economic sectors that sell before this during the pandemic, are now positioned for the strongest recovery and the reopening process led by restaurants, hotels, entertainment venues, travel and so many. Return to office plans, which remain focused on hybrid approaches will continue to draw employees closer to corporate offices. Given that many workers won't be required to be in the office on a full-time basis, we expect average new distances to increase.
As we highlight on page S-17.1 of our supplemental, this transition has already started in recent months as our hardest hit markets in the Bay Area once again experienced net positive migration from beyond the NorCal region. In particular, since the end of Q1, the submarket surrounding San Francisco Bay have seen positive net migration that represents 18% of total move-outs over the trailing three months compared to minus 8% a year ago. These inflows are led by residents returning from adjacent metros, such as Sacramento and the Monterey, Peninsula as well as renewed flow of recent grads -- graduates arriving from college towns across the country, a notable positive turnaround from last year. In Seattle CBD, we've seen similar or even stronger recent inflows and we're likewise experiences -- experiencing a strong market rent recovery.
On the supply outlook, we provided our semi-annual update to our 2021 forecast on S-17 of the supplemental with slight increases to 2021 supply as COVID-related construction delays shifted incremental yields from late 2020 into 2021. We expect modestly fewer apartment deliveries in the second half of 2021 with more significant declines in Los Angeles and Oakland. While it is still too early to quantify recent volatility in lumber prices and shortages for building materials may impact construction starts and the timing of deliveries in subsequent years. Multifamily permitting activity in Essex markets also continues to trend favorably, declining 200 basis points on a trailing 12 month basis as of May 2021 compared to the national average, which grew 230 basis points.
Median single family home prices in Essex markets continued upward in California and Seattle, growing 18% and 21% respectively on a trailing three-month basis.
The escalating cost of homeownership combined with greater rental affordability from the pandemic have increased the financial incentive to rent. We suspect these trends will continue given muted single family supply and limited permitting activity and I believe these factors will be a key differentiator for our markets in the coming years compared to many U.S. markets with greater housing supply.
Turning to apartment transactions, activity is steadily accelerated since the start of the year, with the majority of apartment trades occurring in the low-to-mid 3% cap rate range based on current rents. Generally investors anticipate a robust rate recovery, especially in markets where current rents are substantially below pre-pandemic levels. With the recent improvement in our cost to capital, we have turned our focus once again to acquisitions and development while remaining disciplined with respect to FFO accretion targets.
With respect to our preferred equity program, we continue to see new deals, although the market is becoming more competitive. Lower cap rates from pre-pandemic levels have produced higher-than-anticipated market valuations, which in turn has resulted in higher levels of early redemption.
That concludes my comments. It's now my pleasure to turn the call over to our COO, Angela Kleiman.
