The single-family rental (SFR) sector has settled into a cycle of robust activity following a long run of skyrocketing growth. The sector showed signs of strength in several areas during the second quarter at a time when the overall residential housing market experienced moderating growth, according to Arbor’s SFR investment trends report for Q2.
Notably, build-to-rent (BTR) construction remains robust, driven by demand for apartments in purpose-built communities, the report said. SFR homes continued to attract households from all generations as the homebuying market remains challenging, with two in three renters now considering leasing to be a long-term housing solution.
SFR rent growth fell below pre-pandemic averages during the second quarter as for-sale inventory grew and home price gains softened, said the report. SFR construction starts have begun to stabilize following a period of rapid transition as capital markets continue to adjust to higher interest rates.
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SFR CMBS issuance totaled $7.8 billion last year, up 179% from the prior year. During the first quarter of 2025, issuance reached $1.8 billion, which puts it on pace to reach $7.4 billion this year, said Arbor. First quarter issuance nearly doubled from the fourth quarter of 2024, a time when activity in structured capital markets typically stagnates. This suggests momentum is building, said Arbor.
Occupancy rates across all SFR property types averaged 93.7% in the first quarter, a decrease of 20 basis points from the fourth quarter and the fourth consecutive quarter of declines. SFR occupancy rates have fallen a total of 160 bps since mid-2021, which Arbor said mirrors a broader trend across the rental sector. Despite this, SFR properties continue to post the highest average occupancy rates among all types of rental housing, said the report.
A significant dip in retention rates for expiring leases may explain softening SFR occupancy rates. The share of tracked SFR units with expiring leases that re-signed for another year was only 79.2%, down from 87.3% in 2022. However, the report said a recovery in retention rates is already underway, with 84.3% of expiring leases re-signing as of December 2024.
SFR rents continue to grow but at a slower pace. Zillow data indicates the overall average rent for the sector was up 4.1% year over year through March, following a slower increase during the first three months of the year.
Indianapolis posted the strongest annual SFR rent growth, with prices up 6.3% year over year through March. St. Louis and Kansas City followed, with rent growth of 6.1% and 5.7%, respectively. Slower rent growth was observed in Jacksonville, Phoenix and Sacramento.
SFR cap rates edged higher in the first quarter of 2025, reaching 6.8% to break a three-quarter streak of SFR cap rates holding steady at 6.7%. In the 13 quarters since hitting an all-time low of 5.3% shortly before the Federal Reserve began tightening interest rates, SFR cap rates have risen by a cumulative 149 bps, said Arbor.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
