With its West Coast portfolio, Essex Property Trust is better positioned for the current multifamily cycle than its peers still fighting through heavy supply in the Sun Belt.

The San Mateo, California-based REIT delivered on that promise in the second quarter with a core funds from operations of $4.08, which beat J.P. Morgan’s estimate of $4.06 and Bloomberg consensus of $4.04, according to a July 29 research report from Anthony Paolone, executive director at the firm.

However, Essex’s net operating income growth came in at 2.6% year over year, 10 basis points below J.P. Morgan’s estimate. “The small miss on the top line we think is due to lower ‘other’ property income,” Paolone wrote.

Powered by a strong Q2, Essex raised its core FFO and same-store revenue, expense and NOI projections for full-year 2026. “On its surface, the beat and raise looks good for ESS, though we would argue that the bar here is the highest in the multifamily space,” Paolone wrote.

Essex’s valuation, at an implied cap rate of 5%, sits nearly 100 bps inside that of its peer group. To reach expectations, the REIT’s new lease spreads will need to accelerate from the 1% posted in Q1, according to Paolone.

But with a foothold in Northern California, a national leader in rent growth, Essex remains poised for a strong second half. “While national economic and employment growth have been measured, West Coast multifamily fundamentals continue to demonstrate durability with limited housing supply across our markets and affordability favoring renting,” CEO Angela Kleiman said on the REIT’s earnings call on July 30. 

Here is a look at the regional trends up and down the West Coast affecting Essex’s Q2 performance.

Tech sector drives demand

Essex’s current strong performance — and standing among investors — is largely driven by its Northern California presence. The area is also the REIT’s strongest, with a 4.4% YOY increase in Q2 revenues. It's the leading multifamily market in the county, according to Kleiman.

In Q2, Northern California delivered 6.5% blended rent growth and robust occupancy for Essex. Strong supply-demand combined with continued technology sector investments across the Bay Area are a big part of the region’s success story, according to Kleiman. But that wasn’t the only factor driving growth.

The firm is seeing “positive migration trends as talent and entrepreneurs are drawn to the unique concentration of capital and innovation,” Kleiman said. “As a result, we are experiencing growing momentum of demand for housing throughout the broader region.”

In another tech hotbed, Seattle, Kleiman noted improving operating conditions in Q2 with a 340 bps sequential increase in blended rent growth to 2.6%. The area’s revenues rose 1.7% YOY in Q2. “Consistent with normal seasonality, market rents reached their peak around early July and are expected to moderate through the balance of the year,” Kleiman said.

Essex’s CEO noted stronger performance on the Eastside, which achieved 3.2% blended rent growth compared to 1% in Seattle’s urban core.

“We are also encouraged by recent office expansion announcements from several notable companies,” Kleiman said. “These trends are consistent with prior innovation cycles and reinforces Seattle's long-term position as a leading technology market. While it will take time for these commitments to translate into meaningful hiring, they represent a positive signal for future demand.”

Southern California in recovery

While the Northern part of Essex’s portfolio is tied to tech sector performance, its Southern California properties are more closely tied to national economic trends, according to Kleiman.

“The broad U.S. economy actually is slower this year than last year,” Kleiman said. “And we are tethered to that, especially Southern California, including LA.”

In Q2, Essex generated 1.4% blended rent growth in Southern California, with a 1.5% YOY increase in revenues. “Against this tempered employment backdrop, limited new supply has supported relatively stable operating conditions,” Kleiman said.

Orange County led Essex’s Southern California portfolio in Q2, while Los Angeles lagged. Still, there are green shoots in the region.

“If you look at Southern California, while it is a lag for the West Coast, it is still a solid long-term market, generating 1.4% blended rent growth with occupancy above 95%,” Kleiman said. “It performs — outperforms — most of the major metros in the U.S.”

Essex’s Q3 got off to a good start, with July posting similar rent blends to Q2 and slightly better than last year, according to Kleiman.

“Looking ahead to the second half of the year, we expect the broader economy to unfold generally consistent with our initial forecast for the year with modest job growth and continued macroeconomic and geopolitical uncertainty,” Kleiman said.

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