The largest apartment real estate investment trusts collected more rent this past quarter, but signs that this property type's high-flying days may be numbered were sprinkled across the optimism executives presented to investors.

Rental revenue rose for the five largest apartment REITs: MAA, AvalonBay Communities, Essex Property Trust and Camden Property Trust. Net operating income, a key performance measure for REITs, rose as well even though operating expenses have increased.
 
Germantown, Tennessee-based MAA, the largest publicly traded apartment REIT and the second-largest owner of apartment units in the country, reported a 10.1% increase in expenses compared to last year. Office operations increased the most, followed by insurance. Property taxes increased 9.8%.

Rent growth, however, for all of them continues to slow as operating costs increase. That comes amid concerns of a potential recession and as layoffs have picked up, notably in the technology industry.

Still, relatively high mortgage rates and home prices are pushing ownership out of reach of potential buyers, imbuing confidence within the industry that their properties can persevere even in the face of risks.

“We are currently in an excellent spot but acknowledge that the risks and uncertainties are more elevated than usual,” Mark Parrell, Chicago-based Equity Residential’s CEO, told investors on the REIT’s earnings call.

Parrell listed inflation and Federal Reserve Board actions as the biggest issues that could affect job growth, and said Russia’s war with Ukraine and capital market volatility are among the risk factors going forward.

Higher interest rates and uncertainty have already chilled buying and development plans across the board. Northern Virginia-based AvalonBay Communities said it was reducing its development pipeline by about 26% for the year. And Camden Property said in the second quarter that it wouldn’t be buying or selling properties for the rest of the year. And, indeed, it hasn’t.

“Apartment transactions remain quiet as participants' cost of capital continues to rise and price discovery continues,” Ric Campo, CEO of Houston-based Camden Property, said on the company's third-quarter earnings call.

On a call with investors two weeks ago, Michael Schall, San Mateo, California-based Essex’s CEO, touted the West Coast’s job growth resiliency within its home state, pointing out that Northern California’s pace was significantly higher than Southern California’s 4.3% year-to-date pace.

Job openings at large technology companies have dropped from historic levels to about 20,000, which is where they were between 2016 and 2020, Schall said.

“While we recognize that tech job growth is slowing, the large tech companies are well-capitalized and continue to expand and hire in our markets,” Schall said.

On Monday, Menlo Park, California-based Meta, Facebook’s parent, announced it was eliminating 11,000 jobs across the company, or 13% of its workforce around the world, and continuing a hiring freeze. The company’s Worker Adjustment and Retraining Notification letter hasn’t appeared yet with California to show the impact there.

Meta’s announcement follows San Francisco-based Twitter’s announcement last week that it was cutting some 3,700 employees, roughly half its workforce. Of those, 983 are in California, mostly in San Francisco, according to the company’s WARN letter.

Meanwhile, in the Sun Belt where apartment markets set a blistering rent growth pace but is now cooling, Eric Bolton, MAA’s CEO, told investors that “we’ve not seen any evidence of weakness in the drivers of demand for apartment housing as it applies to our Sun Belt portfolio.”

Among the REIT's new leases, 15% were relocations to the Sun Belt from coastal markets while only 5% of relocations were moving out of the Sun Belt, Bolton said.

MAA’s rent growth has slowed, dropping to 13.7% for the quarter from 18% in the second quarter for new leases. Renewal rent growth dropped from 16.5% to 14%. Rent growth tends to slow in the fourth quarter across the industry.

The REIT’s rent growth is expected to drop further. Tim Argo, MAA’s chief strategy and analysis officer, said on the company’s earnings call that it is getting about 10% growth on renewals in the quarter and the blended rate with the new lease rate growth is about 8.3%. That would be down from the 13.9% in the third quarter.