Although enjoying significant growth in the last several years, even during the pandemic, the single-family build-to-rent sector appears currently to be on a more even keel, according to a new study.
Noting that the single-family build-to-rent market reached all-time highs in 2022, the report issued by the Northmarq company states that for the rest of this year “deliveries are expected to remain elevated, but starts are forecast to slow by nearly 50%.”
Based in Minneapolis, Northmarq provides capital markets information and research for commercial real estate investors.
The report, called simply Single-Family Build-to-Rent, additionally notes that the “accelerating pace of deliveries” has created more vacancies in this particular market sector, although “renter demand has remained strong enough to support modest rent growth.”
Part of the reason for the cooling-off has to do with simply getting financing: “The debt and equity climate is more conservative than in recent years,” says the report, “but deals are getting done.”
Even more, investment activity in this sector has also slowed down, “following a similar trend in the traditional apartment market.” Cap rates, meanwhile, have slowly increased since around mid-2022, averaging close to 5.2%.
And then there is always the role played by mortgage rates, which have been on a significant upswing in the last year. The Northmarq report says such rate increases, most recently at around 6.2%, are “twice as high as late-2021 levels.”
That rate elevation has caused some would-be buyers “to be priced out of the market, while others remain on the sidelines, hoping rates will retreat further before deciding to buy a home.”
Despite such fluctuations, there remains hot single-family, build-to-rent markets throughout the country. Phoenix, according to a new survey conducted by the site Rent Café, emerged last year as the second most vibrant market for such construction in the nation, with Dallas in the number one slot.
Notes the Northmarq report: “In the West region, where communities of single-family rental units first began to gain popularity as an alternative to traditional apartments, delivery totals rose 30% in 2022, reaching approximately 13,000 units.”
The 2022 numbers marked the fifth year in a row where deliveries in the West topped 10,000 units.
By Garry Boulard
