Participants

Marty McKenna; Investor Relations; Equity Residential

Mark Parrell; President, Chief Executive Officer, Trustee; Equity Residential

Michael Manelis; Chief Operating Officer, Executive Vice President; Equity Residential

Alexander Brackenridge; Executive Vice President, Chief Investment Officer; Equity Residential

Robert Garechana; Chief Financial Officer, Executive Vice President; Equity Residential

Eric Wolfe; Analyst; Citi

David Segall; Analyst; Green Street

Steve Sakwa; Analyst; Evercore ISI

Jeffrey Spector; Analyst; Bank of America

Ami Probandt; Analyst; UBS

Richard Hightower; Analyst; Barclays

Alexander Goldfarb; Analyst; Piper Sandler

Nicholas Yulico; Analyst; Scotiabank

Haendel St. Juste; Analyst; Mizuho Securities

Adam Kramer; Analyst; Morgan Stanley

Julien Blouin; Analyst; Goldman Sachs

John Kim; Analyst; BMO Capital Markets

Brad Heffern; Analyst; RBC Capital Markets

Presentation

Operator

Good day and welcome to the Equity Residential first quarter 2025 earnings conference call and webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Marty McKenna. Please go ahead, sir.

Marty McKenna

Good morning and thanks for joining us to discuss Equity Residential's First Quarter 2025 results. Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer. Both Bob Garechana, our CFO; and Alec Brackenridge, our Chief Investment Officer, are here with us as well for the Q&A. One of our peers will be hosting their call in an hour or so. So we plan to finish in time for that call to begin on time.
(Event Instructions)
Our earnings release is posted in the Investors section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now I will turn the call over to Mark Parrell.

Mark Parrell

Thank you, Marty. Good morning and thank you all for joining us today to discuss our first quarter 2025 results. I will start us off, then Michael Manelis, our Chief Operating Officer, will speak to our first quarter operating performance, then we'll go ahead and take your questions. Our first quarter results exceeded our expectations, and we are well positioned for the primary leasing season. Our operating dashboards continue to show good to excellent demand across all of our markets with levels of supply the main differentiator and the strength of each market's performance.
As is our usual practice in the first quarter, we have not made any changes to our guidance. Like most market participants, we see a higher-than-usual level of uncertainty in the forward path of the economy given various recent governmental actions relating to tariffs and other matters. The impact of these actions on the larger economy and on our business are hard to estimate currently and will take some time to unfold.
That said, Equity Residential will continue to benefit from powerful supply and demand tailwinds that favor the rental housing sector, including the long-term undersupply of rental housing in our markets, the high cost and low inventory of single-family-owned housing and demographic and social factors that are driving increased rental housing demand, especially for our higher-quality communities located in our country's most desirable metro areas.
Also being a strong cash flow business with a material dividend and fortress balance sheet and without foreign operations in a time of heightened uncertainty is a definitive positive and may lead to opportunity later.
Turning to investment matters. We have left unchanged our guidance for $1.5 billion of acquisitions and $1 billion of dispositions in 2025. When we gave guidance, we expected to transact very little in the first quarter, and that was the case. The institutional sales market in the first quarter was reasonably busy with volumes higher than a year ago but still below pre-COVID deal volume levels. At the prices so far, Simon affected by higher rates and uncertainty.
There are probably several factors at play here, including some sales that closed in the first quarter that were contracted for an earlier, more stable time or that involved mandatory reinvestment needs like Section 1031 exchanges.
However, we also continue to see a significant number of buyers interested in investing in multifamily assets at 5 cap rates and below given their stable cash flow and inflation protection characteristics and secular supply and demand tailwinds. If apartments continue to evolve as a safe haven trade in real estate and in an increasingly uncertain world, we would expect over time for our company's multiple to reflect that fact and to increase accordingly.
And with that, I'll turn the call over to Michael Manelis.

Michael Manelis

Thanks, Mark, and thanks to everybody for joining us today. I'm going to provide a quick update on our performance, and then we'll begin the Q&A session. So overall, we had a good first quarter with same-store revenue growth that exceeded our expectations.
The stronger performance was driven by better physical occupancy at 96.5% across the portfolio and resident turnover of only 7.9%, which set the record for the lowest that we have ever reported. This is a continuation of a very favorable prior trend and supports the strength of our centralized renewal process and intense focus on delivering our residents a quality experience.
In addition, ended rate growth of 1.8% in the quarter came in right at the midpoint of our expected range. We saw strength in New York and Washington, D.C. as well as continued improvement in our West Coast markets of Seattle and San Francisco. All of this positions us well to take advantage of the opportunities that the primary leasing season brings.
In times of heightened uncertainty, as we see currently, we remind our teams to keep their eyes on their operating dashboards, tracking demand, leasing velocity and pricing power, all of which are blinking green currently and look in line to slightly ahead of our expectations.
We also keep a close eye on job growth expectations and level of new supply in our markets. And as we sit here today, the job numbers to date have been solid, but we acknowledge less certainty in the future job growth projections.
But what is clear is that we are getting even more positive on less impact from future supply as we expect the current environment to even further reduce the number of apartment starts this year as capital allocators hesitate to make big outlays in turbulent times. In addition, the financial health of our residents remained strong. In fact, the average household income of the residents who rented with us in the last 12 months is up from the prior year period, and the average rent-to-income ratios remain very favorable at 20%.
Our centralized processes and system transparency provides us with a powerful and immediate feedback loop to any potential shifts in conditions on the ground in our markets. As of today, we are not seeing any signs of consumer weakness, which typically shows up and increases the number of lease breaks, unit transfers to lower rent units, increases in delinquencies or a slowing percent of residents renewing their leases with us.
I'm not going to go around the horn to all markets, but I will highlight a few that have likely been on people's minds. First, to our nation's capital. There have been a lot of questions on what the impact from government job layoffs in the market will look like.
And as of now, we are not seeing an impact. I recently spent a few days in the market, touring our assets in D.C. and Northern Virginia. Right now, we are over 97% occupied in the market and producing good rent growth. There are a few stories of residents expressing concern due to job loss but nothing at the moment that is impacting any of our stats, results or projections for the next 90 days in the market.
Although I would remind you that we would be a lagging indicator, not a leading one. I can also tell you that we have seen some inbound inquiries from a few West Coast residents needing to relocate to the D.C. market now that the in-office work is required by the government. It is also important to note that in the past, we have seen situations, for example, in Seattle and San Francisco, that experienced layoffs with extended severance periods. And the result was more about a slowing of rent growth than any kind of increase in lease breaks, delinquency or move-outs.
In terms of supply, the D.C. market is expected to deliver another 12,000 units this year with a material drop-off projected in 2026. After seeing the peak in the third quarter of 2024, it is clear that our portfolio will see -- or continue to see less direct supply throughout 2025 and '26.
On the West Coast, Los Angeles is a bit of a mixed bag. I was just in the market several weeks ago, and while we have been able to build physical occupancy sequentially and turnover has improved, pricing power remains somewhat elusive.
Performance is much stronger in the suburban submarkets of Santa Carina and Ventura County than the more urban infill locations with little overall operating impacts from the wildfires earlier this year. We believe that the slow pace of recovery in the entertainment business, along with some quality-of-life issues, are contributing to this performance. We are hoping that recent increases in tax subsidies will lure more entertainment production and resident demand back to the market.
Now to the tech centers of San Francisco and Seattle. San Francisco is showing the improvement that we talked about at our recent Investor Day with portfolio-wide occupancy running above 97%.
Turnover declined in the quarter, and although concessions continue to be common in the market, we are seeing opportunities to increase base rents at a pace that is better than we expected. The downtown submarket is demonstrating strong momentum with very stable high occupancy and concessions declining pretty steadily all year so far, both in the percent of applications and dollar amounts being given.
And those declines are on top of the increases we are also seeing in base rent, which combined is fueling our net effective prices in the marketplace. We like what we see from the new mayor and his focus on improving quality of life and promoting local businesses. Tech employment seems stable with more employers pushing a more robust return-to-office policy.
And most of the supply will be delivered in the Peninsula and South Bay, which have been among the better-performing submarkets for a while. There will be no new supply downtown, which should benefit our portfolio there. Seattle also continues to show signs of improvement. The return to office from Amazon has been a positive for the market. Occupancy is at 96.5%, and we saw good rental rate growth in the quarter.
Tech employment seemed stable in this market as well. And while we are seeing an impact from new supply in both the Downtown and Redmond submarkets, we expect that impact to lessen materially as the year progresses.
Turning to our expansion markets in the first quarter. Atlanta, Dallas and Austin performed pretty much as we expected given the challenging operating conditions due to the level of competitive new supply impacting our same-store assets. Denver's overall demand felt a little weaker than we would have expected in the quarter, which resulted in less pricing power.
As we sit here today, overall, demand across all four markets is showing seasonal improvement heading into the peak leasing season. That being said, concessions are in wide use in these markets, and we continue to have muted expectation for the first half of the year.
Switching to innovation and automation updates, which we provided details on at our recent Investor Day. We are in the process of expanding the deployment of our conversational AI capabilities across the entire leasing journey. This, along with the broader strategic automation initiative, is designed to reduce manual tasks, accelerate leasing cycles, minimize errors and ultimately improve our overall efficiency and scalability, all while improving the overall prospect experience.
By this time next year, we expect the process from the initial inquiry, the lease signing to be almost entirely automating, giving our customers more self-service and the ability to work with our teams as much or as little as they choose. We are very pleased with the momentum we have on the various initiatives relating to both other income generation as well as operating efficiencies and improved customer experiences.
As we think about the second quarter, we expect to continue to see a sequential build in new lease change and strong, stable performance in terms of retention, achieve renewal rate increases and occupancy. We have an expectation for blended rate growth of 2.8% to 3.4% in the second quarter and feel really well positioned as we enter the primary leasing season despite the overall economic ambiguity.
Our operational agility and strategic focus will ensure that we are not only able to navigate any potential near-term economic headwinds but are poised to capitalize on future opportunities to deliver sustained value.
At this time, I will turn the call over to the operator to begin the Q&A session.

Question and Answer Session

Operator

(Operator Instructions) Eric Wolfe, Citi.

Eric Wolfe

Just curious what you're seeing in terms of acquisition opportunities in Sunbelt right now. And just given what's happened over the last month with increased macro uncertainty, just curious if that changes your views on Sunbelt fundamentals over the next year or two just as you sort of need more job growth to absorb supply or if it doesn't really matter for your view on the fundamentals in those markets?

Alexander Brackenridge

Eric, it's Alec. So it was an interesting year. The beginning of the year, as Mark mentioned, is showing less transactions activity. And what did close has really been priced in Q4. So there's kind of a lull towards the end of the first quarter.
But since then, in the last month or so, things have really picked up. And it's a reflection of two things. One is just that there are lenders that have just kind of had it and they're not extending loans anymore. They're not extending caps on interest rates. So we're seeing some more products starting to come to the market.
At the same time, there's a lot of interest in buying that product. So multifamily remains a favorite asset class, and we expect to see that continue. So pricing for deals is around a 5 cap. People are buying into an environment where they think that the dramatically decreasing supply will offset some uncertainty on the job side, I think.
I mean, I think everyone is a little uncertain about where we're headed, but buying in at a good basis in markets that have robust likely future job growth is something that is attractive to us and others, but we anticipate being active.

Eric Wolfe

Got it. That's helpful. And then second question on your blended spread guidance. Can you just talk about how you form that? Is that based off a normal seasonal curve? And sort of what percentage of the leases have you already signed for the second quarter so far?

Michael Manelis

Eric, this is Michael. So yes, I think the way that we kind of formulate it is we're just looking at new lease change and kind of our understanding of what we expect for the seasonal trends. At the beginning of the year, we said we expected this year to play out with normal rent seasonality.
So we're kind of modeling just that kind of sequential build as we work our way kind of through the peak leasing season. So sitting here today, I mean, the range of 2.8% to 3.4%, it's really based on consistent performance in renewals because those are numbers that we already have out in the marketplace.
We're still pretty early in. So obviously, we have all the April month kind of in there, but we have sequential build happening in volume as well for May and June. So I would say we're still under 1/3 of the transactions from a new lease side. And on the renewal side, just a little bit more kind of predictability and confidence in that kind of 5% range.

Operator

David Segall, Green Street.

David Segall

It seems that the Bay Area is continuing to outperform, and Seattle is perhaps plateauing a little bit. I'm curious if you have any thoughts on why those markets seem to be diverging slightly this quarter and if you think one market tends to lead the other.

Michael Manelis

Yes. David, this is Michael. So I think when you look at both of these markets, I guess I would have you go back to kind of a little bit the sentiment that we laid out at the Investor Day, which is the recovery that we had baked in for the year for both of these markets. Sitting here today, if you went back and look at kind of my prepared remarks from last quarter, Seattle kind of had a little bit more momentum in the fourth quarter heading into the first quarter. And right now, it's playing out exactly like we see with -- it does show some improvement sequentially.
It is kind of on track with our improvement that we modeled in for the year. San Francisco was a little bit slower to have the head start like Seattle, but right now is really coming out of the gate strong and actually exceeded our expectations. Both of these markets, I would say, have these urban centers that still have this net effective pricing that's improving, but there's still about 6% to 7% below where they were prepandemic. So for us, this means that they still have a lot more room than most other submarkets nationally to go up before hitting kind of at any renter fatigue level.
So I wouldn't read too much into any one quarter. I would say both of these markets are following a trajectory right now of recovery and still have more room to go. But we do like what we're seeing in San Francisco, and you can tell that from my prepared remarks.

David Segall

Great. And can you just comment on the relative attractiveness of acquisitions versus buybacks or your developments given where the shares are trading and, say, of the transaction markets you've already described?

Mark Parrell

Yes. It's Mark. Thanks for that question, David. So just comparing those and just having that kind of conversation, we think our best opportunity continues to be investing in existing assets in these primary acquisition markets of Dallas, Denver and Atlanta. We're still interested in Austin, but there's such a glut of supply that's probably a little bit later for us to complete our portfolio there.
We like development incrementally more than we did 90 days ago. We're seeing some deals that makes some sense to underwrite. There's a lot of risk in development with construction costs, maybe immigration pressures on staffing. But we're being really thoughtful about that, and you may see a few starts there. We are certainly open to a share buyback.
We want to be mindful of the uncertainty that's out there for all 3 of those investment alternatives, and we'll step very carefully. And what I would say is for pretty well all our investment activity now, it's going to be more of a recycling exercise, meaning dispositions will fund acquisitions, disposition or net cash flow will fund development, incremental new development activity, and dispositions will fund any share buyback that we do decide to do.
So the guidance does imply net reinvestment, and that could happen at this juncture with this level of uncertainty. We're probably a little more of a match funder. You recall last year, we were incrementally growing. We issued debt and bought some extra assets there. But it's hard to do that right now with the cap rates, where Alec told you they were in the Sunbelt.

Operator

Steve Sakwa, Evercore ISI.

Steve Sakwa

I'm just curious, Michael, if you're changing anything on the operating side, meaning are you sending out renewal notices earlier? Are you looking to lock down a resident sooner just to kind of derisk the leasing season? Or from your standpoint, these are sort of small bumps in the road and it's pretty much business as usual?

Michael Manelis

Yes. Steve, this is Michael. So there's really no change right now, I would say, in our renewal process. A lot of the timing that we're doing is also governed by statutes in the markets that have notice periods. And we have a pretty robust process that's centralized right now.
So the minute that, that notice kind of is going out into our resident portal, we're having constant communication with those residents, trying to see if we can get kind of those early notices or get a little bit of that kind of confirmation their intent to renew with us. So I would say the setup right now has positioned us really well heading into this leasing season. And I don't see us kind of changing anything right now, which is typically -- you've got your occupancy bill.
Right now, you're leaning into rate, you're leaning into the sequential build not only in volume but improving pricing. And the retention side of this business right now, I just don't see it changing much, which is we have such a strong percent of our residents renewing and good transparency into that and very consistent expectations around our achieved renewal increases.

Steve Sakwa

Okay. And maybe one for Bob just on the expense side. I know the insurance premium was a nice kind of tailwind certainly for the back half of the year. But maybe just talk about expenses, kind of what you're seeing. Any pressure on any line items or anything as it relates to tariffs or materials that could maybe upend the expense growth rate?

Robert Garechana

Yes. Steve, it's Bob. Everything is proceeding pretty much in the aggregate the way we would have expected as reflected in not changing the guidance. As you mentioned, we have a little bit of puts and takes. So assurance was probably a benefit; real estate taxes, trending slightly ahead; Utilities, we're seeing a little bit more pressure from commodity prices offsetting that.
But we're not seeing anything from like an R&M line or anything in the OpEx side from a tariff perspective that is driving driving a variance in expenses. So so far, so good. Early in the year, but feel good about where we sit from an OpEx side.

Operator

Jeff Spector, Bank of America.

Jeffrey Spector

First, if you can expand on your comment on your expansion markets. You mentioned that the first half of the year -- you're expecting the first half of the year to play out as you reflected in your guidance. Can you talk a little bit more about expectations for, let's say, second half of the year or even '26 at this point?

Michael Manelis

Yes. Jeff, this is Michael. So I think relative to the expansion markets I would look at, we came into the year with an expectation that we were not going to see a lot of pricing power in the first half of the year, that we would see kind of a rent seasonality pickup heading into a peak leasing season allow us to stabilize occupancy, which ultimately could give us some opportunities in the back half of the year to start raising kind of some of the prices in the market.
And so far, it's kind of playing out exactly like how we thought it would. I guess I would frame the expansion markets relative to 2026, which is we're in the process of building some amazing well-balanced portfolios in these markets that are younger in age, require less capital and are really positioned to deliver some strong revenue growth once we get past the absorption of some of the units.
When some of these newer acquisitions fold into 2026, which is late in the fourth quarter of this year, I mean, our setup going in is going to be strong and should start to allow us to see some of the recapturing of some of the rate declines that we've been experienced. But right now, our expectations are still pretty muted for this first half of the year. And it really won't translate into improving revenue growth until probably get well into 2026.

Alexander Brackenridge

Yes. No. Jeff, it's Alec. I would just say, got to distinguish among the markets. Some of them have this supply balances coming into play in places like Dallas, Atlanta and Denver.
But there are other markets that really haven't cauterized the bleeding from all the supply that they've been under. And those are places like Austin where we have 3 properties and maybe Charlotte, Phoenix, other markets like that. So there's a difference among the markets.

Jeffrey Spector

Great. That's helpful. And then my follow-up, if you could just talk a little bit more about your comments -- I guess, tie your comments on the green -- blinking green, the dashboards are good to excellent verse. You also discussed, of course, some of the the key signposts or things you would see if there were issues. And based on your experience, historical data, I mean, would you expect at this point or were you actually concerned at this point you could start to see some of those issues?
Or it really comes down to jobs, as you talked about and the strength in the job market, and that's really what we should watch closely to determine the risks around delinquencies, move-outs, lease breaks, et cetera? And what type of historical delay do you see?

Mark Parrell

So Jeff, it's Mark. I'm going to start and Michael will elaborate. First, we are a lagging not a leading indicator of changes in the economy. So people, if they lose their jobs, don't immediately give us the keys. So everything Michael has told you is absolutely accurate, but it doesn't necessarily tell you what's going to happen in the fourth quarter.
I would also add that our residents tend to be well educated and have many options. So you might remember in the layoffs that occurred in the tech sector in 2022 in Seattle and San Francisco where we have large portfolios, it certainly slowed rent growth. But it wasn't a great reversal because those people had decent severance and they found new jobs because they were highly skilled. So I'd tell you, job growth matters. You had a very tough recession you could have impacts and you would have impacts in our business and every other real estate business.
But I'd say right now, we're 96.9% occupied. We're in just such a strong position going into what we think is an opportunity year. And if that changes, I still think we're going to have a pretty good year just because of where we're starting and because our residents, frankly, are very employable. And no matter what happens in a place like D.C., if you're a skilled engineer, you're going to find another job in another sector. And probably from our perspective, there would be very little interruption in leasing activity, except maybe some dampening of growth.
I think Michael's had enough. So that's --

Michael Manelis

You just said it all.

Mark Parrell

Yes.

Operator

Michael Goldsmith, UBS.

Ami Probandt

This is Ami on for Michael. We've seen some increasing rent control in Maryland, Washington State has discussed it. So I'm just wondering how you think that some of these recent rent-control measures could impact the portfolio?

Mark Parrell

Yes. Thank you for that question. So just so everyone has the same information in front of them, Washington State is in the process of passing new rent control, very similar to what's in California now. So the rent cap on renewal is the lesser of 10% or 7% plus CPI. Vacancy decontrol does exist, and there's a 12-year new construction exemption, which is pretty modest.
We're very disappointed to see this action by the state of Washington. If you want more housing and the governor said in his campaign, the new governor he did, you don't create price controls. This is a disincentive to capital investing in Seattle and in places around Seattle where more housing is needed. So definitively a negative for this market, which otherwise has taken a lot of steps forward on public safety and just engagement with the business community and making things a better quality of life for their citizens. So we are disappointed.
That said, we'd tell you, probably not much effect this year just given where we are in this market in terms of our ability to raise rents. But I think, again, disappointing and discouraging. For Maryland, I'd take it a step further. We have a small portfolio in Maryland. The rent control you referred to, I think, is mostly the Montgomery County rent control, which is suburban Washington, D.C.
We only have one property subject to those rules, but we are unlikely to invest further in that area in that state. It's -- the political climate has become quite poor from a landlord perspective. And you can see just across the Potomac in Virginia, where they're encouraging housing production, you see that housing production occurring. And in a state like Maryland, that's become increasingly hostile to housing providers. You see the amount of investment in those markets, whether it's Baltimore or Washington, D.C.
metro decline. So I think it's unfortunate. I think it's the opposite of the kind of zoning decontrol and public-private partnership that will increase supply and solve the housing shortage. So we'll continue to advocate directly and through our associations against those kind of ill-conceived policies.

Ami Probandt

And then you addressed some of the moving pieces on expense, but I was wondering if there were any moving pieces within that maintained same-store revenue guidance.

Robert Garechana

Can you -- sorry, Amy, can you repeat the last part? I couldn't quite hear you.

Ami Probandt

If there were any offsetting pieces within your same-store revenue guidance, such as higher occupancy, lower rents, et cetera?

Robert Garechana

Yes. There's many moving pieces, but at this point -- and that's why we provide a range. So I think we'll probably be able to give you a better sense on the next earnings call once we've gotten through the Q2 leasing piece.
We certainly, as we said in the release, are running ahead of expectations on occupancy, which you saw in the first quarter, we were right on the number as it relates to blended rate. And everything else like -- and the other two big items are really other income and bad debt were running mostly in line.
But it's early. And Q2 and Q3 are really where you see most of the most of the action when it comes to the rev line.

Operator

Rich Hightower, Barclays.

Richard Hightower

I appreciate the -- a bit of the commentary on D.C. in the prepared comments. And maybe just to drill down a little bit further on the D.C. market, maybe go through who's currently moving in, moving out? Would you say that the range of outcomes in D.C. at this point given what we know might be the widest as far as its potential impact on full year guidance? What are you -- what would you handicap in terms of the outcome later this year as severance for government employees runs out and you start to see some of those lagging effects that you've already sort of described? Just help us understand some of the moving parts there again.

Michael Manelis

Yes. So Rich, this is Michael. I think when we're drilling in and looking at D.C., right, clearly, today, when you look at the new move-in activities from the demographics, the age, the income levels, there's really nothing that's changing. We capture the employer at time of move-in, and we don't keep up with that as they continue to renew with us. We've snapshot the portfolio.
We have a sense of kind of the exposure to direct kind of government workers. You also have kind of the consultant environment around there. And for us, that's what we're watching. We're trying to understand if you really see a pullback in contracts in some of those consultings and see job loss in those firms. That's what we're trying to pay attention to.
The exposure is still pretty small, but it's really hard to quantify your direct exposure to all businesses kind of that support this market. But right now, I feel like we've got the right level of transparency in, and we're just not seeing anything like from the lease breaks, from the commentary to suggest that we should be concerned.
But again, I think as Mark spoke, some of these folks had severances that go all the way into Q3, even in Q4. And we'll just see. If they're able to pick up new jobs, we probably won't see any impact from this.

Mark Parrell

And Rich, it's Mark. I just want to quantify some of the numbers we see with the understanding that we only get an employer's name at the beginning of their leasing journey with us. So 10%, 11% of our residents in D.C. showed an employer of federal government entity. Some of that did include, for example, defense department people and stuff that may be less affected by these layoffs.
Then when we could sort of trace it to what we guessed were folks that were directly employed at consulting firms in this area, the number got closer to 15%. And as Michael said, there's some estimation in that process. D.C. is getting to be a much more diversified economy. I mean Amazon has their HQ2 there.
They have significant operations there. Volkswagen's headquarters is there. I mean there's just a lot of other employers. So this is not a one-horse town like it used to be. And I guess we have a reasonable degree of confidence that we're going to get through this.

Richard Hightower

Okay. That's helpful color, guys. I guess one follow-up, just on the, I guess, extraordinarily low turnover rates in the portfolio. And obviously, in a quarter where new lease growth is negative and renewals are positive, you're obviously benefiting from the fact that people stay in place. Would you say that for whatever variety of reasons, there's sort of a new normal in that metric?
And I know, Michael, you mentioned you're not really changing revenue management per se, but what would it mean if that metric ticked up? Could you identify reasons why that might happen or might not happen? How should we think about that in particular?

Michael Manelis

Yes. So Rich, Michael again. So I think relative to the turnover, we said this in our outlook for the year, right? We've been in a period of time where we've had really low resident turnover. We modeled for that to continue this year.
The fact that the first quarter came in even lower than kind of historical norms, it really isn't a testament, one, to what is happening in kind of the macro economy. When there's ambiguity, people tend to bunker down, right?
And so retention could go up. But we've also put a lot of effort as a company into our centralized renewal process, a lot of effort into ensuring that we're delivering the right customer experience. So I think that is also fueling some of the retention numbers that we see kind of playing out. And in the near term, for the next several quarters, we just don't see any kind of change to that process.

Operator

Alexander Goldfarb, Piper Sandler.

Alexander Goldfarb

Two questions. First, Mark, I just want to go back to your comment that apartments are a lagging indicator, not a future. Just curious, given that you guys are leasing probably 30, 60, 90 days out and can see the pace of signed leases and a sense of -- certainly, the property managers have a sense of people's smiles or frowns on their faces. Is there a sense that apartments are forward-looking because of that leasing activity that you can see what's going on over the next, call it, 3, 4 months of activity?

Mark Parrell

Yes. I'm going to have Michael elaborate, too, on this. There's some truth to that, but I also say people could be uncomfortable about their jobs and their job situation, but they still need a place to live. So they're still going to go out there and renew. They're still going to go out there and talk to us about a new unit if they don't like their living situation.
People have things happen in their lives, whether it's divorces, marriages, coupling and uncoupling that causes demand in Michael's world that has nothing to do with the general economy. So I guess I'd say to you, it's not like we don't have some of what's going on, and we've shared that, I think, pretty fully with you just now. It's just that some of that can occur later in the process.
People don't immediately stop moving with their parents or stop their leasing process with us if they feel insecure about their job. That's different than, for example, the hospitality sector where people might just stop going on vacation.
And that's just what they do and they can do that on a dime. They need to live somewhere, and they're going to probably live with us if they have even some reasonable degree of comfort that they'll get a job at some point. So I wouldn't say we aren't an indicator. I just don't think we're the same sort of indicator you're implying in your question, that it's like absolutely clear that we can see the inflection point.

Alexander Goldfarb

And then second question is following up on the rent control question. Just in California, Sacramento is debating sort of exempting urban residential from Cequa. It sounds pretty optimistic, but you guys are probably closer to it. So do you think that this is a good thing and that it will finally start to curtail the powers of Sequel? Or when you guys look at the legislation, you see ways that Cequa could work around to continue to inhibit development of residential in the urban areas?

Mark Parrell

Yes. I think it's a great question and observation. Loved your piece on that. We're hopeful. I mean it's got a ways to go yet.
And there is opposition to it. But I think what you're seeing is policymakers, and these are all Democratic policymakers, looking at and saying, how can I make it easier to build more units? And Sequa is an impediment to that. So let's move that out of the way. I think that's the message. And they're doing that pretty consistently.
The National Multi Housing Conference here in Chicago this week and talked to a number of people there. And in California, they really are working to comply with the state-level rules about permitting more units. And we see that even in places like Orange County, where there's been a lot of opposition, there's a few holdouts. But my money is on the state making these localities create more units. So I think, Alex, you're exactly right that it's a positive and it's good.
Whether this bill gets through or not in its current form, I'd say probably is a little 50-50. But it's a good thing. And I think policymakers knowing they need to make it easier to build in California, boy, you had a sea change from 5 or 10 years ago, right?

Operator

Nick Yulico, Scotiabank.

Nicholas Yulico

First question is just in terms of -- you talked about potentially starting some new developments. Can you just give us a sense for how construction costs might be getting impacted now from tariffs? Any perspective just on a real-time basis?

Alexander Brackenridge

Yes. So Nick, it's Alec. It's interesting because absent the tariffs, it felt like costs were coming down in a lot of markets, maybe 0% to 5%, depending on the market and depending on how overheated it got. But then the tariffs have obviously is an element of uncertainty that really depends on how a number of variables, obviously, which items get taxed and what the tariff is and the makeup for your project.
Having said all that, the developers that I talked to and that we talk to as we look at joint venture opportunities are also seeing that potential increase offset by contractors getting really hungry. They see the pipeline dwindling, and so they're accepting less of a margin. And so that might balance off, so the costs won't go up that much.
Having said all that, even with no change in cost, it's really hard to make deals underwrite right now. So it really doesn't change the supply dynamic that much, I guess, is my net conclusion, and that's the supply will continue to decline during the course of the year.

Nicholas Yulico

Okay. And then second question is just going back to D.C. I know you gave a bunch of commentary, which was helpful on the exposure there. I guess what I'm wondering is if you've done sort of an extra layer of analysis kind of similar to what you did at the Investor Day when you looked at your exposure to certain job centers versus the national average. You used a location quotient.
I guess I'm wondering if you've done anything similar to that in terms of D.C., meaning that you have more or less exposure to these types of jobs that could be potentially cut. And whether there's also perhaps a locational issue on your submarkets there, just kind of a gut feel on whether certain submarkets might be impacted more and whether you even have product in that market in D.C.

Mark Parrell

Yes. Nick, it's Mark. Thanks for that question. We're levered about the same to government jobs as the GDP of that area. So we think 11%, 12% is federal government.
And then, of course, there's these harder to measure other consultants and the like in D.C. So we think our numbers basically follow what the market has in terms of employment and economic power drivers. We've looked at our assets one by one in this market. And it's sort of what you would expect. I mean we have some assets very close to the Pentagon, for example, that have pretty high federal government employee usage.
I wonder if those jobs are going anywhere. So -- but there wasn't anything we looked at that we found terribly surprising. Some of the Maryland properties, and again, we have a pretty small portfolio there that are near NIH, also had a fair bit of exposure. I wonder if those scientists aren't employable elsewhere. But where exactly they go, I'm not sure.
So my guess is that is more NIH employment than federal defense spending. So it's sort of a mixed bag. And I wouldn't say there's anything we saw that made us particularly anxious like we're levered to one department or another. It's pretty broad-based portfolio.

Operator

Haendel St. Juste, Mizuho.

Haendel St. Juste

So first question is on San Francisco. I think I heard you mention earlier, Mark, that that you were 97% occupied there base rents going up, but that concessions are still prevalent. So maybe can you add some color or clarify that? Seems a bit of a bizarre situation? And then maybe put the numbers around the level of concessions you're seeing in San Francisco market today versus a year -- a quarter or a year ago.

Michael Manelis

Haendel, this is Michael. So yes, San Francisco is actually over 97% occupied. Net effective pricing is up 6%-plus since the beginning of the year there. And what we're seeing, and I think I said this in my prepared remarks, concessions are more common right now still in that downtown area. They are pulling back.
So just to give you some frame of reference, at the beginning of the year, we were probably like 45% of our applications receiving a month. Today, we're probably closer to like 1/3 of our applications receiving two weeks. But we're seeing the properties that we're competing against are still offering concessions in the marketplace, and it's still an expectation of prospects coming around. How long those hold on in the marketplace? I don't know.
But at this point, what we're more interested in is just where is that net effective price. So if base rents are moving up, but persistent concessions stay at two weeks, that's okay, right? So we're kind of indifferent right now. We're watching the pricing curve. We're watching the demand, but we feel really well positioned, right, with occupancy over 97% and the sequential build in net effective pricing occurring each and every week.
And whether or not concessions continue to pull back from this point forward through the leasing season, I think it's still uncertain for us, but we're almost indifferent.

Haendel St. Juste

Got it. Got it. Appreciate that color. Maybe one on Boston. We haven't talked much about Boston. It's an important market for you guys. Are you guys seeing a little bit of a slowing there. I'm wondering if it's maybe just tough comps or anything in particular that perhaps can explain some of that.

Michael Manelis

Yes. Haendel, this is Michael again. So yes, I think Boston for us, I mean, it felt a little bit weaker in the first quarter from, I would say, the new lease change or just the overall pricing on new leases. It is a very seasonal market. So the new lease change was more negative, but the volume of transactions was really low.
Looking at our stats for the last kind of four to five weeks, I will tell you, it looks pretty stable to us. We have momentum now heading into the leasing season. We have pretty stable occupancy there. I think, for us, we've talked a lot about D.C. and some of the headline risk.
We're watching the headline risks in Boston, but some of that pullback in the funding -- research funding on top of kind of the life science and bio slowdown is what we're trying to understand the impact on overall demand. So far, it feels okay. Like I said, looking at April, looking at kind of the forward for May. But I do think we have a little bit of that forward risk there on the overall demand in that market. But nothing that over right now is telling us that we need to revise kind of guidance for the full year of the market.

Operator

Adam Kramer, Morgan Stanley.

Adam Kramer

Just wanted to ask about Washington, D.C. again. I know it's been talked about it a few times here. But just maybe if you could quantify on the demand side. I know this return-to-office theme has come up a bunch.
Maybe just quantify, again, to the extent that you can, I know everyone's crystal ball is a little bit cloudy at this point, but just where we are in that return-to-office cycle. Do you think it's kind of still early days. Summit has been to come back to office? Or are we maybe 75, 80, 85 the way through? People have already been called back and maybe we're in just the later stages of that demand?

Mark Parrell

Yes, it's Mark. That's -- we don't have any particular insight to share with you. We have a few folks in other markets on the West Coast, for example, at our federal workers and said they wanted to take advantage of our coast-to-coast transfer program and move from a West Coast market to D.C. because now they're required to be in the office. But that is really a handful of people.
It isn't a deluge of people. So I don't have any sense of the RTO cycle. A bunch of us have been in D.C. lately. It did feel more activated on The Street than it has in a while. So that's probably all I'd have to share there for you.

Adam Kramer

I appreciate that, Mark. And then maybe just on developments. I think you mentioned a little bit earlier, kind of a greater possibility of starting development versus 90 days ago. Just wondering what that's a function of. I would have thought with tariffs and immigration impacts, it would be harder across the board to kind of start developments. Maybe just what kind of -- what are the kind of drivers of that statement you made earlier? And what are you guys seeing real time in the development side?

Mark Parrell

Yes. I agree with you. There's more uncertainty. This hurdle rate, this sort of 6% bogey we've put out there for current rent yield, you got to feel really comfortable about that. I think with appropriate contingencies, which is what the team is underwriting, you can get yourself a little bit more comfortable.
We do look at that relative to acquisitions and with some acquisition cap rates being lower than 5, it starts to look more appealing. And developing certainly when no one else can or very few can and delivering two or three years out in some of these markets we're trying to grow in, that may be a pretty good play. So that's the way we're thinking about it, but it is not going to be a very significant move. It will be three assets or something or two or something like that, that we really think we can deliver at a 6 or better yield at a cost that makes sense in a submarket that we like and that complements our acquisition efforts.

Operator

Julien Blouin, Goldman Sachs.

Julien Blouin

Michael, you were speaking earlier about on the renewal side, things trending into April. I guess, can we have the same discussion on the new lease side? I know we generally try to stay away from monthly disclosures. But just given the amount of uncertainty out there, is there any sort of trends or data points you can give us into April?

Michael Manelis

Julien, it's Michael. Yes, I mean, I think you kind of hit it, which is we're going to stay away giving any kind of monthly stats. I think all of these things are really best viewed over longer periods of times as trends. I think you could pick up from my commentary, you can pick up from the guidance that we put out there on the blend for the second quarter, you can see the sequential improvement that we're putting out there with the blends.
And you could see my stability in renewal performance, which tells you that April obviously has the trajectory in line with what you would expect, which is seasonal sequential improvement heading into the peak leasing season.
And I'll be honest, even looking past April into May and June, there's nothing that we see yet to suggest that we're not going to continue to see that sequential build, which will manifest itself in the new lease change sequentially building as well.

Operator

John Kim, BMO Capital Markets.

John Kim

In Boston, that was a market where it looks like you built up some occupancy during the quarter. And I was wondering if that contributed to the new lease rates kind of softening and if there are any other markets where you're going to be a little bit more defensive and build up occupancy as you head towards the second and third quarter.

Michael Manelis

Yes. John, it's Michael. So I think Boston, we clearly had a lean in even in the fourth quarter. Some of these more seasonally pronounced markets will lean into occupancy in the shoulder period. So that could have played a little bit into the softness on the new lease change.
But like I said, we're coming into kind of the leasing season now and getting a little bit of that sequential build. In terms of other markets right now on the defense, I think, look, if the expansion markets were still in kind of a defensive position, the occupancies today are 95.5% if they hold and are stable.
Heading into the leasing season, that should manifest itself into what I thought would happen in the second half of the year, which maybe you start to see a little bit inching of the concession use or a little bit inching up on price. There's really not any other markets. I mean we got pockets that were up against supply in L.A., Hollywood, Mid-Wilshire, things like that, that I would say anywhere we're up against direct competitive supply.
You're going to see us lean in a little bit more on to the occupancy, take our foot off the gas a little bit on the rate regardless of what season I'm dealing with.

John Kim

Okay. And on D.C., you've done a great job answering all the questions on the call today about it, and it's been very resilient. One of the metrics that you provided at Investor Day were 12 lease breaks that you had in the market, partially offset by incoming demand from the West Coast. I was wondering if that number had moved up meaningfully since late February.

Michael Manelis

No -- I mean, yes, it's higher. But again, every single month, we would have lease breaks due to job loss. So I think the tracker, right, the last I looked was like 28 total over the course of like more than two months. So it's just -- it's nothing at the end of the day when you just think about lease breaks that occur in the marketplace. We're just not seeing anything to signal that this is anything other than what you would normally experience.

Mark Parrell

So we're going to just as a note -- just one second, Jas. We're going to take one more question just to be respectful of a start time for our peer.

Operator

Brad Heffern, RBC Capital Markets.

Brad Heffern

Can you just give your long-term perspective on L.A.? You've obviously been trading out of it some, and it's had more than its fair share of issues over the past few years. But there have been some articles floating around about the low number of shoot days, other cities taking a larger share of the movie and TV business. So does that give you any incremental concern?

Mark Parrell

Yes. That's a perceptive comment. And I think Michael alluded to that in his remarks. I do think we see Los Angeles as weaker than we would have hoped and the entertainment industry and the strikes last year. I think a lot of people sort of figured out, content creators, where else to go to create content that might be cheaper.
And I think that is a bit of a drag in that area. I think the film credits are helpful. I also think maybe compared to the other West Coast markets, they just haven't done as good a job creating quality-of-life improvements and attractiveness to business. I think Los Angeles has a longer way to go than what you see San Francisco and Seattle doing.
So I do think L.A. is an area of focus. In terms of our capital allocation, I would expect to own less in that market. I do think it's a big market. Prop 13 is a huge benefit to our returns in that market. I do think it's a pretty diversified employer base, but it is lagging lately.
And I do think a little of that is public policymaking that needs to improve a great deal. Okay. So we will be available later this afternoon for any follow-up questions. I want to thank everyone for your interest in Equity Residential today, and have a good day. Thank you.

Operator

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time