Baron Fund Adds Essex as Apartment Supply Set to Ease

Baron Real Estate Income Fund increased its investment in Essex Property Trust and other apartment landlords during the second quarter of 2026. The fund cited improving rental fundamentals and a favorable supply outlook, especially in slower-recovering markets such as San Francisco.

Baron’s institutional shares returned 12.18% in the quarter, compared with an 11.84% gain for the MSCI US REIT Index. The letter did not disclose how many Essex shares the fund bought or the size of its position.

The fund’s case rests partly on fewer new apartments competing for tenants. Essex’s July supply forecast estimated 21,600 new multifamily units across its markets in 2026, falling to 17,600 in 2027. Those estimates cover markets in California and Seattle.

Essex’s latest results show uneven conditions across those regions. In the second quarter, same-property revenue rose 4.4% year over year in Northern California, led by 7% growth in San Francisco. Southern California revenue increased 1.5%, while Seattle Metro gained 1.7%.

Companywide, same-property revenue grew 2.7% and net operating income, or property revenue minus operating costs, rose 2.6%. Essex raised its 2026 Core FFO forecast to a midpoint of $16.14 per share, up 20 cents from its prior midpoint. Core FFO is a measure of recurring real estate operating performance.

Baron said it had been cautious on apartment landlords in 2025 amid weak job growth and high apartment inventory. It now sees limited new supply, rental costs that compare favorably with homeownership, and low renter move-outs to buy homes as supports for the sector.

The outlook still depends on demand, which Essex says is closely tied to job growth. Investors will watch whether hiring strengthens enough to support rents as deliveries decline, and whether Essex can sustain growth across its varied West Coast markets.