AvalonBay Trims '25 Outlook as Rent Trends Cool & Operating Costs Rise

AvalonBay Communities AVB recently provided an operating update highlighting key capital markets activity through Dec. 5, 2025. However, the company lowered its core funds from operations (FFO) per share growth outlook to 2.2% from the prior guided 3.5%. The same-store residential net operating income (NOI) growth has been reduced to 2% from the earlier 2.7% owing to lower revenue growth of 2.5% and higher expense growth of 3.8%.

The above outlook has been triggered by lower-than-expected job growth, leading to revenue moderation in the late third quarter of 2025 and into October. The company is witnessing higher operating costs in the second half.

The company pointed out that its same-store revenues started to moderate in August, with trends becoming more vivid in September and October. Softening occupancy, lower like-term effective rent change driven primarily by new move-in rent change and bad debt improvement at a pace modestly below the prior forecast, were the factors contributing to the same. The Mid-Atlantic and Southern California led the way to the majority reduction in revenue growth expectations, followed by expansion regions.

On the positive note, the company emphasized that its established regions are set to benefit from the record-low levels of new supply in 2026. The residential REIT’s $3.6 billion development underway is likely to provide meaningful value creation upon stabilization.

Due to the strength of its balance sheet, the company could carry over its recent $400 million debt offering, $488 million share repurchases and $340 million dispositions under agreement set to close in the first quarter of 2026. AVB also iterated that its 2025 transaction activity reflects an increase in its suburban and expansion regions, fulfilling its portfolio allocation objectives.

Conclusion

AvalonBay’s near-term outlook has clearly softened, with slower rent growth, higher expenses and weaker market demand forcing cuts to its 2025 revenue, NOI and core FFO expectations. Still, the company’s strong balance sheet, low future supply in key regions and sizable development pipeline provide support for longer-term stability once fundamentals improve.

However, in the past three months, shares of this Zacks Rank #3 (Hold) company have declined 7.8% compared with the industry's fall of 5.9%.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are W.P. Carey WPC and Terreno Realty TRNO, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for WPC’s 2025 FFO per share has been moved marginally northward over the past two months to $4.92.

The consensus estimate for TRNO’s 2025 FFO per share has been revised upward by 4.6% to $2.71 over the past month.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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