Michael J. Schall
President And Chief Executive Officer at Essex Property Trust
Thank you for joining us today, and welcome to our third quarter earnings conference call. Angela Kleiman and Barb Pak will follow me with prepared remarks, and Adam Berry is here for Q&A. I will begin by congratulating Angela for her appointment to the Essex Board and for chosen as the next CEO of the Company following my planned retirement in March 2023. I've known Angela for almost two decades and we have worked closely together since she joined the Company 13 years ago. Angela embraces and exemplifies Essex's strategy and core values and is a dedicated thoughtful leader as well as an excellent negotiator. Our recent leadership announcement was a combination of the multiyear succession plan administered by the Essex Board, and I appreciate each participant's commitment to the plan that resulted in its success. It has been an honor to lead this awesome company made possible by my great leadership team and the coordinated effort of every Essex associate. My thanks to all of you.
Today, I will touch on our third quarter results, introduce our initial market level rent forecast for 2023 and provide an update on the apartment investment markets. Our third quarter results represent our fifth consecutive quarter of improving core FFO per share. On a year-over-year basis, we reported core FFO per share and NOI growth of 18.3% and 15.4%, respectively, with core FFO exceeding the midpoint of our guidance by $0.04 per share. The positive results are reflective of the team's execution and the continued recovery throughout our markets, largely driven by the ongoing rebound in Northern California and Seattle with Southern California remaining a consistent and strong performer.
Year-to-date, the economy on the West Coast has shown resiliency with job growth as of September 2022 of 4.3% in Southern California and significantly higher in the tech markets of Northern California and Seattle. The positive job growth is partly attributable to the recovery of workers lost amid the significant shutdowns early in the pandemic, especially leisure, hospitality and service jobs that were added throughout the summer. As a result, it is not surprising that the unemployment rate in each Essex market with the exception of Los Angeles is under 4%, including San Francisco and San Jose in the mid 2% range. The unemployment rate in Los Angeles is higher at 4.5%, likely related to the ongoing eviction moratorium in the city of Los Angeles, which is expected to run -- to end in February 2023.
Job openings at the large tech companies have declined from record levels during the pandemic, although they remain significant with approximately 20,000 jobs available, roughly consistent with the number of job openings they reported between 2016 and early 2020. Thus, 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. As in previous years, we've included our initial forecast for 2023 market level rent growth on page, S-17 in the supplemental. Our forecast begins with the consensus estimates of third-party economists for the national economy with respect to GDP and job growth, indicated at the top left of page S-17. Based on these estimates, our data analytics team estimates job growth in each Essex metro.
On the supply side, we use our ground up fundamental research to estimate apartment deliveries, which is proven to be highly accurate over many years. Everyone's visibility into next year is limited by uncertainty related to past and future Fed actions and their impact on the overall U.S. economy, and therefore the forecasted rent growth may vary if the key assumptions prove inaccurate. In summary, housing supply across the Essex markets is expected to grow at 0.6% of existing housing stock with the greatest increase occurring in Seattle with a 1.1% increase. Job growth is expected to be new next year, growing at 0.4% overall in the Essex market, with the best job growth expected to be in San Francisco at just over 1%. As a result of these demand and supply assumptions, we expect net effective new lease rents to increase 2% in 2023 with our California markets expected to marginally outperform Seattle.
On a year-over-year basis, we expect apartment supply to decline about 10% in 2023 with Northern California having the largest expected reduction down 45%. We also expect 2023 single family deliveries to be similar to 2022, even with permits growing modestly given much higher mortgage rates. With respect to for-sale housing, declining housing production and reduced affordability are tailwinds for apartments in the Essex markets, representing a small positive factor, contributing to our rent outlook next year. Given economists' expectations for a modest recession in 2023, I'd like to summarize our historical experience about operating our portfolio in previous economic downturns. Generally, in each significant past recession, our weakest market has been Seattle, which is due to the confluence of negative job growth and higher levels of housing supply deliveries. Northern California follows a similar pattern to Seattle with respect to job losses during recessions, although with significantly less supply that results in outperformance relative to Seattle.
Finally, Southern California is our best performer during recessions, given its diverse economy and minimal supply. That being said, each recession is unique and there are several factors that could lead to a different outcome. First, most of the previous recessions followed a long economic expansion where rents grew substantially. And it's those higher rents that pressures affordability that fosters higher level of apartment supply. On the West Coast, rents plummeted in the early part of the pandemic and our recovery was much delayed compared to the rest of the country with Southern California's recovery beginning in mid-2021, and Northern California and Seattle in early 2022. As a result, the West Coast is still in the early stages of its from the 2020 recession and housing supply has not had sufficient time to fully recover.
In addition, with many offices closed during the pandemic, it was common to hire remotely with the expectation that workers would need to relocate closer to offices upon re-openings, which is now occurring. The relocation of employees back to the West Coast pursuant to return to office programs, represents demand for apartments that is generally not included in job growth. Finally, we expect less outward migration in the next few years, primarily because those that typically leave California, such as the newly retired, probably left early in the pandemic when businesses were shut down. In a moment, Angela will comment further on migration.
Turning to the apartment transaction market. We have recently seen a few deals close at valuations that were negotiated before the most recent increase in interest rates, and conditions have changed enough since then to significantly impact transactions. As expected, the immediate impact of higher interest rates will result in diverging buyer and seller expectations for property values, resulting in a larger bid-ask spread. Generally, it takes more than higher interest rates to create financial distress, especially with recent strong rent growth given inflationary pressures. However, pockets of distress may develop from credit or liquidity events or excessive Fed tightening, although no major issues are apparent at this point. Broker price talks with respect to apartment transactions indicates that cap rates for high-quality and well-located apartments are in the mid-4% range in the Essex markets.
Finally, I wanted to note that, our balance sheet is in great condition, thanks to the unwavering urgency of Barb and the finance team over the past several years. When the markets turn positive, we expect excellent opportunities to invest creatively, and we will be in a position to be opportunistic.
With that, I'll turn the call over to Angela Kleiman.