AvalonBay Communities' executives expect the firm’s portfolio to see an effective rent change of about 3% in 2025.

However, like their peers at other apartment REITs, the leadership group predicts rent growth will pick up as the year progresses and new supply cools down.

“We are expecting slightly stronger growth in the second half of the year as compared to the first half of the year, which is actually the opposite of what occurred in 2024,” AVB Chief Operating Officer Sean Breslin said on the REIT’s earnings call earlier this month.

In its same-store portfolio, the Arlington, Virginia-based REIT expects net operating income growth of 2.4% as revenues rise 3% and expenses increase 4.1%. Driving this growth will be the economic strength of its target renters. 

“For our portfolio specifically, we are also likely to benefit from the expected increase in job growth in two important sectors: professional services and information, which over-index to our established regions and produce above average wages,” Breslin said. “Growth in these sectors was relatively weak in 2024 but is expected to rebound nicely in 2025.”

However, even with that employment growth driving demand, performance will vary across AVB’s major regions in 2025.

Coastal strength

Metros on the East and West Costs should again provide the strongest performance for AVB in 2024. “Our established coastal regions are expected to produce rental revenue growth north of 3%, while the expansion regions are projected to deliver sub-2% growth,” Breslin said.

The mid-Atlantic is slated to produce revenue growth in the mid-4% range, followed by Seattle in the low-3% range. Northern and Southern California should be at roughly 3%, while New York, New Jersey and Boston will be in the mid-2% range.

“Our established coastal regions are expected to see the lowest level of supply as compared to both the U.S. overall and the Sun Belt, with new deliveries representing just 1.4% of stock,” Breslin said.

AVB didn’t suffer any property damage in the recent Los Angeles wildfires, though CEO Ben Schall said some associates lost their homes. “What we have heard on the ground from our teams is that most of those customers, as you might expect, are looking for single-family rentals — larger floor plans — preferably in the same school districts if they can get it, which is certainly challenging, obviously, given the level of destruction that occurred,” Breslin said.

Inside its coastal markets, AVB is focusing on adding more suburban properties. A year ago, 70% of its coastal assets were in those locations. Now, it is 73%, with the ultimate goal to hit 80%. 

Suburban deliveries are forecast to be about 1.2% of housing stock in 2025, which should insulate AVB’s apartments from competition. “From a rent change standpoint, our suburban portfolio continues to outperform — it outperformed in the fourth quarter by about 40 basis points,” AVB Chief Financial Officer Kevin O'Shea said on the earnings call. 

Expansion regions

AVB still wants to increase its portfolio allocation in the Sun Belt. “An increasing number of AvalonBay customers live in these markets, and we also see the benefits of diversifying away from certain risks, including increasing our exposure to areas with less regulatory risk,” Schall said. 

In 2024, the REIT boosted its expansion market presence from 8% to 10% of its portfolio. “We expect to make further progress toward our 25% expansion market target in 2025 and believe that we’re in an attractive window to facilitate this portfolio shift by acquiring and developing assets at a cost basis meaningfully lower than it has been over the past few years,” Schall said.

However, supply is causing near-term pain in the Sun Belt markets. 

“Charlotte, particularly urban Charlotte, is pretty beat up,” Breslin said. “Its [rent change] is likely going to be flat to negative. Dallas will likely be positive this year because of a pretty rough 2024 in the 2% to 3% range.”

Breslin expects AVB to see a flat to 50-basis-point increase in Florida, while the REIT’s suburban assets in Denver may experience less supply than the market as a whole.

“It [Denver] has experienced a level of supply that has impacted the market more generally,” Breslin said. “So it would also be below the established region average.”

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