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Why Essex Property Trust Concentrates Its Portfolio on the West Coast

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Updated

Focus on West Coast regions

Essex Property Trust (ESS) predominantly locates its apartment communities in the following major regions of the west coast of the United States:

  • Southern California – Los Angeles, Orange, Riverside, San Diego, Santa Barbara, and Ventura counties
  • Southern California – the San Francisco Bay area
  • Seattle Metro – Seattle metropolitan area

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Why the West Coast market?

The company has mainly concentrated on the West Coast market as it believes that this region is the strongest apartment market in the nation. The West Coast market has the following characteristics:

  • higher incomes coupled with a higher cost of home ownership
  • a higher percentage of educated 25–34-year-olds
  • the highest gross domestic product, or GDP, in the country
  • job growth consistently outpaces the national average
  • centers of innovation and drivers of job creation

Market potential

Essex Property Trust expects coastal California and Washington to lead the nation in job growth given their vibrant technology and life science employment sectors. The rent growth in Northern California is expected to generate portfolio-leading revenue growth for the company, followed by a modest improvement in revenue growth in Southern California. On the other hand, Seattle’s market is expected to report moderate growth in 2015 relative to 2014.

The concentration of properties in West Coast markets reflects Essex Property Trust’s strategy of exploiting the high potential of these fast-growing markets. Other major players in the apartment REITs such as AvalonBay Communities (AVB), Equity Residential (EQR), and UDR (UDR) are also present in these markets. The iShares U.S. Real Estate ETF (IYR) invests 1.9% of its portfolio in Essex Property Trust’s stock.

We’ll explore Essex Property Trust’s merger with BRE Properties in the next part of this series.

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