Weak homes sales and rising rates slowed the rapid post-pandemic growth in institutional single-family rental (SFR) ownership, but growth is picking up, according to data from Yardi Matrix. While focusing on operational efficiency, this less-exciting phase of the industry is still in a positive position for the long term.
Currently, institutions own roughly 600,000 SFR units, which is about 3% of the 17 million single-family rental homes and a small fraction of the 82 million occupied single-family homes in the country. Institutional SFR portfolios are comprised of scattered-site properties and communities that were mostly built as rentals.
Tracking communities with 50 or more SFR units, Yardi Matrix’s database encompasses more than a quarter-million SFR units comprised of 141,000 operating properties and 121,000 units in the build-to-rent (BTR) pipeline, which includes 50,000 under construction.
The sector’s growth in the near term will be concentrated in BTR communities, according to Yardi Matrix. While new construction is a slower path than acquisitions, its growth will likely depend on interest rates, home prices, and investor demand.
“Whatever happens in the capital markets, demand for single-family rentals is almost certain to remain firm. The pandemic provided a boost to household formation and SFR demand that is likely to prove durable,” Yardi Matrix reports.
For 2023, single-family rents are up $23, while year-over-year growth has decelerated to 1.3%. Metros with the strongest year-over-year rent growth as of the midyear point included Nashville, Tennessee (21.3%); Baltimore (13.3%); Chicago (11.1%); Pittsburgh (10.7%); and Philadelphia (8.3%). Orlando, Florida (-20.9%); Miami (-8.6%); and California's Inland Empire (-4%) posted the weakest rent growth for SFR.
Extremely high occupancy rates still show signs of strong demand for SFR ranging between 95.7% and 97.2% since January 2018. Last month, the occupancy rate sat at 95.8%. Although down 30 basis points year over year, the high rate is likely to remain, Yardi Matrix suggests.
Since the beginning of 2019, SFR stock has increased 40%. In 2022, the sector delivered 14,858 BTR units and is on track to match that pace this year with 6,600 units delivered through June. According to Yardi Matrix’s database, there are also 36,000 units in the planning stage and 36,000 units in the prospective stage.
Properties under construction are concentrated in the Southwest (10,678 units), West (9,842), Southeast (7,431), Midwest (6,395), and Florida (5,963). The most current operating stock is in the Midwest (48,726 units), Southwest (46,474), and West (44,455).