Multifamily REIT Revenue Growth On The Rise

After the crackling hot 2021 for CRE REITs—funds from operations having grown 24.6% year over year—there’s a sign that 2022 is off to a sharp start, though with some caution in the wings.

According to a new report from CRE data and analysis provider Markerr, Q1 multifamily REIT revenue growth saw a straight market average 9.6% increase over the same period in 2021.

“Double-digit new lease growth, low turnover, and high occupancy led apartment REITs to raise FY22 guidance,” the report said. “On average, apartment REITs increased midpoint guidance for revenue and NOI by 100 bps and 130 bps, respectively.”

REITs raised their second half year guidance for revenue and NOI by 100 and 130 basis points respectively because of new lease growth, low turnover, and high occupancy rates.

The report covers eight apartment REITs that are among the largest owner-operators in the US with a combined 444,000 units. That’s the third straight quarter of year-over-year growth. Sun Belt REITs had the highest uptick at 11.4%, with diversified portfolio REITs at 10.0%. Those with holdings concentrated in coastal regions were behind at 7.6%. One driver was higher interest rates—presumably along with house costs that have continued upwards—increasing the costs of purchasing a home and forcing more people to look at renting.

The best performing markets were tertiary, showing a 13.3% revenue growth and Sun Belt overall hit 12.4%, thanks to higher employment growth. Coastal revenue growth was at 8.1%. That said, according to Markerr, a return of workers to office locations will act as a “catalyst for future housing demand” in coastal regions.

Furthermore, one disadvantage that coastal cities suffered, an affordability gap, is shrinking.  “Markerr measured affordability based on rent-to-income ratio which shows Sunbelt markets to be still more affordable relative to Coastal markets (~23.5% vs ~26% rent-to-income ratios), however the gap between the two continues to shrink as the Sunbelt market sees robust rent growth outpacing income growth,” the report noted.

That raises an important question of whether there might be a near-term limit to Sun Belt migration. A big driver is the cost of living and a 2.5 percentage point difference in rent-to-income ratios would suggest that an important component of affordability in the Sun Belt region is losing its sheen.

Another concern might be that REIT transactions were “muted” as markets reconsider pricing “due to interest rate hikes and inflationary pressures.”