SFR Fundamentals Attracting Institutional Investment: JLL

Occupancy has reached its highest levels in more than two decades, according to the firm's latest report.

Image by Paul Kapischka via Unsplash

Investor appetite and new development activity have been spurred by renters’ growing interest in single-family rentals. These are among the findings of a recent whitepaper from JLL Capital Markets on single-family rentals.

With home prices and interest rates both experiencing ongoing increases, SFRs appear to be a viable choice for many renters who otherwise might have purchased single-family homes. Occupancy of SFR space has reached its highest levels in more than two decades, topping the historical average of 94.1 percent. What’s more, those currently renting single-family rental homes are anticipated to continue as renters for longer periods, given the rise of mortgage rates to 5 percent.

According to John Burns Real Estate Consulting, owning an entry-level home now costs $419 more monthly than renting the same home. That represents the biggest gap in 15 years. The majority of SFR units are now owned by mom-and-pop investors. At present, only 3 to 4 percent of such homes are owned by institutional investors. As a result, considerable opportunity exists for institutional ownership growth in months ahead.

Raised interest

In a prepared statement, a JLL official noted the onset of the pandemic resulted in increased interest in larger spaces at the same time purchasing a home was growing ever more cost prohibitive. A combination of robust SFR demand and shortage of supply has increased interest in SFRs in general, and built-to-rent in particular, among institutional investors. Such investors believe sustained rent growth in the SFR sector present opportunity to hedge against inflation within their portfolios.

The statement went on to assert that because the current mismatch between housing demand and supply cannot be solved overnight, the fundamentals of the SFR market should remain resilient not only in the current environment but long term. Two months ago, Multi-Housing News compiled a list of the most-coveted amenities in SFRs.

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