What Will 2025 Bring for the SFR/BTR Sector?
In the first installment of our outlook series, industry professionals discuss challenges and opportunities for the upcoming year.
The SFR/BTR outlook points to an improved performance in 2025, following a relatively uneventful 2024, when the sector continued to mirror multifamily trends. This year’s progress was not too different from the previous 12 months as the factors that stalled SFR/BTR in 2023 persisted in 2024—high cost of construction, elevated interest rates and inflation, moderating rent growth and abundant supply. However, the overall SFR market stayed healthy throughout 2024, with some regions faring better than others.
2024 highlights
“Frankly, I wish there were some highlights to 2024 in the SFR/BTR sector!” said Mark Wolf, founder & CEO of AHV Communities. Economic conditions and consumer exhaustion have painted a tough landscape in operations at all levels, he said, which “led to lots of stalled deals, good business plans gone bad or being put on a shelf.”
In a year when new development projects and acquisitions remained limited, the focus has mostly been on completing existing developments, stabilizing BTR communities in lease-up and securing financing for projects ready for permanent financing, according to Sudha Reddy, founder & managing principal at Haven Realty Capital, a company with more than $1 billion in assets under management.
Yet, the SFR/BTR sector had a “pivotal year” in the Southeast, where population growth and migration patterns drove sustained demand for rental housing, according to Shoreham Capital Managing Partner Doug Faron. He believes demand received a significant boost from institutional interest in this property type, as more large-scale investors recognized the stability and long-term value of SFR/BTR properties.
The resiliency of the asset class is also among Mitch Rotta’s highlights for 2024. The senior managing director of TruAmerica Multifamily believes that the SFR/BTR sector has shown it can weather the storm in the face of major supply concerns across the country.
This resiliency stems from the evolving lifestyle preferences of Millennials, who—unlike previous generations—have become “more so renters by choice,” according to Doug Ressler, manager of the business intelligence department at Yardi Matrix. Contributing to this choice is the brutal economy of late, which has made it difficult to purchase a home. In addition, both Gen Xers and Baby Boomers have a greater need for flexibility and a less hands-on lifestyle, and since SFR/BTR communities can offer the same amenities as Class A, garden-style communities, the choice is easy.
Challenges remain
However, existing challenges in the sector will persist in 2025, but investors will have another 12 months of data points available, according to Rotta. So next year, we’re going to see how this asset class truly performs because as the market evolves, it will progressively be judged and valued as an independent asset class versus a comparison to multifamily, he believes.
In 2025, most investors will likely stay focused on the trajectory of the economy and the cost to borrow. Reddy expects transactions to pick up if interest rates trend lower, thus allowing for positive leverage and increased underwriting returns. The lease-up pace and rent movement will determine how aggressive investors will be on new acquisitions and developments. More so, given the limited number of new project starts in 2023 and 2024, stock expansion will be limited in the coming years, which could lead to a more favorable rent growth environment, Reddy added.
But 2025 will see robust deliveries across both SFR/BTR and multifamily. Wolf fears there will be a slower recovery due to the abundance of product that is slated to come online. But in his opinion, “we have turned the corner and it’s time to get back to work, get shovels in the ground and sticks in the air, and the good developers with good product should win the day.”
Frame Med Center is AHV Community’s BTR community in San Antonio, Texas. It totals 174 duplexes located 2 miles south of the Medical Center area. All images courtesy of AHV Communities 
Katy Legacy is a 177-unit SFR community in Houston developed by AHV Communities. 
Each home within Katy Legacy features smart home technology. 
VellaTerra features 240 townhomes in Loveland, Colo., and was built by AHV Communities in partnership with McWhinney.
Meanwhile, Ressler draws attention to the fact that, in some areas, the rapid growth of BTR developments has already led to market saturation, contributing to the supply-demand imbalance and leading to higher vacancy rates in select areas.
Additionally, among the current challenges in the SFR/BTR sector that will make it to 2025 are high construction costs and ongoing supply chain disruptions, keeping budgets under pressure. “This could drive increased adoption of modular construction and alternative building materials as the industry seeks to control costs without sacrificing quality,” anticipates Faron.
Another aspect—that could turn into a challenge—is the evolving regulations in certain markets, particularly around zoning and environmental standards. This could lead to longer approval processes and stricter requirements for sustainability in new developments, warned Faron.
But opportunities exist
The long list of challenges doesn’t mean there aren’t any opportunities ahead. After all, the housing shortage in the U.S. surpasses 3.5 million units, and SFR/BTR developments are helping alleviate some of this deficiency by increasing the overall housing supply, according to Ressler. Ultimately, it will alleviate some pressure on housing affordability, too, as some SFR/BTR properties target key demographics, such as young professionals, families and retirees.
Another opportunity for growth in 2025 comes from home builders getting involved in the production of purpose-built BTRs, which Rotta thinks will continue to grow over the next 12 months. “It took time, but as home builders focus on ROI, having a BTR partner on takeout is all the more appetizing,” he said. “As the home builders continue to learn this space and investors get more comfortable with how they operate, these relationships will flourish.”
But as with anything related to evolution, adaptation is key. Developers who can adapt to the market’s advancement will see tremendous opportunities, believes Faron. One of them lies in the untapped markets within the Southeast. As long as population growth continues to push outward from major cities, secondary and tertiary markets are increasingly attractive for SFR/BTR developments. “These areas offer more affordable land, favorable development conditions, and growing demand from both renters and institutional investors,” he argues.
The for-sale housing market’s hard-to-reach status will continue to create demand for SFRs, but the sector’s flexibility and the lifestyle that rentals offer will most likely do the heavy lifting. What’s more, the recent shift in the economic landscape could revive the capital that has been dormant for nearly two years.
“We’re ready for another 10-year run, and whether it starts in 2025 or 2026, it’s still going to be a good run,” predicts Wolf.
Market sentiment for 2025
The overall sentiment for SFR/BTR in 2025 is positive, pointing to a steady year. It will be more predictable and less crowded, believes Wolf, who also intends to keep a dose of caution for next year as “we are on the precipice of a long run.” From 2020 to today, BFR came into its own and became a hot product, saddled with challenges both good and bad. Yet, with a normal operating environment in 2025, it should be “interesting and, frankly, fun to watch the sector develop,” Wolf said.
Next year, the focus will continue to be on leasing and stabilization for most operators, Reddy expects. Additionally, he believes the for-sale project volume will increase as lease-ups are completed and investors are ready for exits.
Growth and predictability are features used also by Rotta to describe the upcoming year within the SFR/BTR industry. Home builders’ involvement will play an important role in the delivery of this product and investors will be eager to find partners they trust. More so, he feels that “we will see capital begin to get more creative than just buying homes, but provide flexible arrangements to home builders through land financing to help assist with better basis.” The next five years will determine the course for this asset class and will shed a brighter light on how these developments perform.
READ ALSO: How SFR Investors Can Stay Ahead of the Curve
Faron is extremely bullish on the future of the SFR and BTR sectors, although challenges are inevitable. He notes that strong demographic trends, continued demand for high-quality rental housing and favorable investment returns will remain robust, and the Southeast in particular will continue to be a hotspot for growth. In addition, he expects the industry to continue to evolve toward a more service-oriented model, where renters expect not just a home, but a complete living experience.
“Developers who can deliver on this—by integrating amenities, technology and community-building features—will be well-positioned for success,” Faron believes.
