Higher occupancy rates and improving tenant retention are strengthening the single-family rental (SFR) sector, with operational performance improving amid softening home prices, according to Arbor’s latest SFR investment trends report.
SFR rent growth remained positive during the second quarter, contributing to increased property-level yields, the report noted.
While build-to-rent (BTR) construction has slowed in recent quarters, demand for purpose-built rental communities remains strong due to the continued high cost of homeownership. After a decade of rapid expansion, the SFR sector is now entering a phase of stable, long-term growth, Arbor said.
Following a notable uptick last year, structured SFR capital markets have maintained a steady pace in 2025. CMBS issuance totaled $4.2 billion through July, putting the market on track to reach $7.2 billion by year-end—just below 2024’s $7.8 billion mark.
“Deal flow in the SFR CMBS market tends to be uneven, often driven by a small number of large transactions that create quarter-to-quarter volume swings,” Arbor said.
"All things considered, SFR capital markets have remained constant through the first half of 2025.”
Occupancy across all sector property types averaged 94.5% in Q2, up 80 basis points from Q1. This gain reversed a four-quarter decline and marked the most significant quarterly improvement in the past four years. From 2015 to 2019, occupancy averaged 93.9%. Recent dips have largely stemmed from declining lease renewal rates—but that trend is reversing. Retention is rebounding, with the six-month moving average holding above 82%, up from 79.2% in April 2024.
Rent growth has continued to moderate across the country. They rose 3.6% year-over-year through June, down from 4.5% in December 2024—the sector's slowest growth rate since January 2017. However, Arbor emphasized that while momentum has cooled, rents are still trending upward.
The Midwest and Northeast led the nation in rent growth at midyear. Providence, Rhode Island, topped the list, with 7.1% year-over-year rent growth through June. Indianapolis and Kansas City followed, with 6.8% and 6.1% increases, respectively.
Meanwhile, cap rates continued to rise, reaching 7.1% in Q2 2025, up from 6.8% in three consecutive quarters of 2024. That came after the level had hit a record low of 5.4% in late 2021. The recent increase reflects the combined impact of higher interest rates and softening single-family home prices, the report said.
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