It seems like ages ago when Washington D.C. was considered a beacon of profit during the recession.
While the nation’s capital deals with mounting supply, and Boston and New York see rent growth moderate, the star performers are on the other side of the country.
“The West Coast is humming,” says Rod Petrik, a real estate research analyst at Baltimore-based Stifel Nicolaus and Co. “We saw re-acceleration in the Bay Area. Those submarkets are seeing a 10% revenue growth. Southern California is also performing very well.”
Need more proof? Just look at the recent REIT calls. For companies, like AvalonBay Communities, Equity Residential, and UDR, the West Coast markets were standouts.
When naming markets that produced an 80-basis point year-over-year occupancy bump, David Santee, Equity Residential’s COO, listed Los Angeles, Seattle, Orange County, San Diego, and one outlier—New York. When he got into the rarefied air of a 140-basis-point increase, San Francisco was the only market he listed.
Jerry Davis, UDR’s COO, said that Orange County continues to outperform the company's budgeted expectations early in 2015. While Los Angeles was a little weaker, he expects both markets to produce revenue growth better than 4.5% in 2015. In San Francisco, things are even better with revenue growth of 6% to 7%. Though that’s a slight drop from the 8.2% posted in 2014.
AvalonBay echoed those sentiments. “We expect same-store revenue growth to average 3.5% to 4.5%, led once again by the West Coast in the 5% to 8% range with Northern California again setting the pace but with Southern California starting to come on strong,” said Tim Naughton, the company’s CEO, on its earnings call. "This past quarter Southern California actually saw the highest sequential growth in our same-store portfolio.”
And, Sean Breslin, AvalonBay’s COO, sees more upside in Southern California, where the company’s rents were up 5% in January.
“Supply has and remains very well in check relative to the rest of the country," he said on the earnings call. "And so as you look through the different markets, we thought at some point we'd see that acceleration, as we've talked about over the past couple of years, has certainly kicked in. And it did kick in, in all three major regions: L.A., Orange County, and San Diego.”
On the research side of the business, analysts aren’t ready to declare Southern California the new king of rent growth yet, though. Northern California and Denver are still the leaders, but Southern California markets are gaining strength, according to Axiometrics’ Jay Denton.
Greg Willett, MPF Research's vice president, sees the same dynamic playing out.
“Southern California was 2014's big mover, going from an underperformer to somewhat better than the U.S. norm,” he says. “But the numbers are still way under the growth seen in the Bay Area.”