SFR Space Offers Investors "Tremendous Opportunity"

The single-family rental market is on fire. As millennials have children, they crave the sprawl of the suburbs where homes are larger and equipped with yards—and investors and developers are hurrying to meet the demand. Brad Hunter, president of Hunter Housing Economics and the keynote speaker at GlobeSt.com Multifamily next month, predicts that the sector could produce 150,000 units within the next five years.

While Hunter doesn’t anticipate that single-family rentals will ever match the volume of the apartment market, he says there is tremendous opportunity in the sector for savvy investors. “Demand is outstripping the industry’s current ability to produce housing for rent,” Hunter, who is speaking on this topic at GlobeSt.com Multifamily conference, tells GlobeSt.com. “We see this in the rapid lease-ups, the high occupancy rates, the rapid rise in rents, and in the underlying household formation rates. More capital is needed for the years ahead to sustain this trend. I think there will be a 20% increase in BFR production this year, and a similar type of increase the year after.”

Within the build-to-rent market, a subsector of new construction single-family rental communities, a multifamily hybrid product is the most popular. “Some multifamily developers and investors are adopting a hybrid form of development, known as horizontal multifamily,” says Hunter. “This is the fastest-growing segment within the built for rent sector, and it is being met with tremendous demand.”

Although there is tens of billions in the pipeline allocated for the build-to-rent sector, there is no fear—at least for now—that development is outstripping demand. “A lot of people are pointing at the new announcements of capital targeting built for rent and getting nervous, but most of the funds that have been announced to have not yet been deployed,” says Hunter. “I do not see a significant risk of overdevelopment in this arena any time soon, but within a couple of years we will have to start being careful about supply levels in certain submarkets.”

While Hunter has a lot of reasons to be enthusiastic about this burgeoning market, he also issues a note of caution for investors looking to join the party. “There is a tremendous opportunity here, but this is not a no-brainer business,” he says. “It is absolutely critical to understand who your tenants are going to be, what locations will work and what rents will be feasible going forward. Even with demand as high as it is, not every deal works.”