Many young professionals no longer want to live in high-rise apartments, which is making waves in the rental market

Living through a pandemic has changed people in numerous ways. One of the effects has been the demand for detached housing, as fewer people wanted to live in high-rise apartments in urban centers. Suburban homes became hot commodities in many areas, as many individuals sought properties with private outdoor spaces and additional rooms for personal offices and gyms. Further, the shift to the suburbs has proved a durable trend that predates the pandemic. 

These developments don’t just create skyrocketing home prices. Demographic trends also suggest that the single-family rental market could be undersupplied over the next 10 years, despite an increase in built-for-rent properties appearing all over the country. 

Here’s a look at how the built-for-rent market is expanding and what it could mean for commercial real estate investors.

Why do renters want houses?

More renters are looking for single-family units because of the additional room and luxuries they provide. Renters seek amenities like private laundry rooms, high ceilings, large kitchens, hardwood flooring, attached garages, and private outdoor spaces, which the average apartment complex in the city can’t accommodate. And individuals can get far “more” for their money in suburban homes vs. city dwellings.

Another factor driving this trend is that more Millennials are having children and starting families. While this shift leads to increased homeownership, buying property remains a poor option for many individuals because of the current economic situation, student loan payments, and uncertainty about the future. 

Many Millennials want houses in the suburbs but aren’t in a position to buy them right now. And the rental market splits the difference and reaps the reward.

Built-for-rent homes

Traditionally, much of the home rental market has been driven by individual investors purchasing houses and renting them out to others. The homeowner eventually turns a profit as renters pay off the mortgage over time. 

But we’re seeing a growing trend in the built-for-rent market where investors or investor groups construct entire communities with rental units. Some large corporations are getting heavily involved in this strategy, as they clearly see the growing demand for single-family housing.

Presently, about 6% of all new builds are built-for-rent, which could result in about 700,000 of these units appearing nationally in the next decade. But that might not be enough supply, so there may be room for growth in the sector as the situation evolves.

The benefits of built-for-rent homes

Choosing to rent houses over apartments brings a few advantages for CRE investors. 

First, renters are willing to pay more. For example, real estate development firm NexMetro has built gated Avilla neighborhoods all over the country and offers units exclusively as rentals. Homes in these communities achieve a 16% premium compared to apartments, and that premium grows to 24% when adjusted for size, location, and age of the units. These numbers signal that people are willing to pay more for a detached home. 

Another plus is that home renters are more likely to stick around longer than apartment dwellers because they perceive rental homes as a long-term commitment. For example, the built-for-rent company Clean Living Communities offers 24-month leases to all its tenants and reports that 80% of them renew once the two-year term is up. This retention rate is greater than the average apartment and mitigates the trouble and expense of seeking new renters.

The long-term impact on CRE

Of course, there’s no certainty that any trend will go on forever. Even though the movement into the suburbs started before the pandemic, we could see a portion of renters miss out on city life. Some individuals could shift back to cities if—and this is a big if—real estate prices in urban centers fall due to lower demand.  

However, the opposite could also be accurate as Millennials now have a taste of living in the suburbs, working from home, and enjoying their private yards. And given that major corporations and REITs are buying up huge numbers of single-family properties, the latter scenario might be more likely. Some heavy-hitters are involved in these built-for-rent communities, which alone makes the situation worth examining closely.

Morris Southeast Group can provide market insights, due diligence, and other guidance as you build and refine a commercial real estate portfolio. We also offer property management services that ease the burden on owners while staying mindful of ROI. Give us a call at 954.474.1776 with any questions. You can also reach out to Ken Morris directly at 954.240.4400 or