Strength in fundamentals across single-family rentals driving institutional investment
With home prices increasing and interest rate hikes expected throughout the year, investor demand within the SFR sector continues to rise
CHICAGO, June 15, 2022 – As both home prices and interest rates continue to climb, prospective renters are increasingly seeking single-family rentals (SFR), which has amplified investor appetite for the sector and sparked new development activity across the country.
According to a recent whitepaper from JLL’s Capital Markets group, occupancy of SFR space has reached its highest point in more than 20 years and exceeded the historical average of 94.1 percent. Additionally, current occupiers are predicted to remain renters for longer, with mortgage rates for homes rising to five percent.
“The shortages in existing supply and strong SFR demand trends have raised investor interest in the build-to-rent space of SFR specifically,” said Managing Director Matthew Putterman, who co-leads the SFR team within JLL’s Capital Markets group. “Investors are seeing the sector’s sustained rent growth as a result of the high occupancy and its overall use as a hedge against inflation within their portfolio.”
John Burns Real Estate Consulting research found that owning an entry-level home is now $419 more expensive on a monthly basis than renting the same home, the widest gap since 2007.
“Following the onset of COVID-19, renter preferences shifted to larger, more spacious living accommodations,” said Geraldine Guichardo, Director of Americas Living Sector Research. “Purchasing a home has now become more cost prohibitive, which makes single-family homes the perfect housing option for many would-be-buyers or renters who simply want more space. These dynamics support the sector’s resilient fundamentals not only in today’s environment but also over the long-term as the nation’s housing supply/demand mismatch cannot be solved overnight.”
Currently, the bulk of SFR units are owned by mom-and-pop investors, and institutional groups only own three to four percent of all SFR supply in the U.S. This presents significant room for opportunity for institutional ownership growth in the coming months.
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm's in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales and advisory, debt advisory, equity advisory or a recapitalization. The firm has more than 3,000 Capital Markets specialists worldwide with offices in nearly 50 countries.
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