Multifamily Vs Single-Family Homes. Who Benefits the Most from WFH?

The pandemic has an unprecedented number of workers out of their offices and into their homes.

Morningstar estimates that 45% of US workers were teleworking at the peak of the pandemic in a new report.

Eventually, these workers will go back to their office. Morningstar expects to see 13% of US workers working from home full time in 2025, which is an increase from 9% in 2019. This would be the largest increase in a decade but isn’t the mass movement to home offices that many people predict.

“While we do expect increased work-from-home uptake to cause some urban renters to move to the suburbs and lower-cost metros, the magnitude of this shift is overstated,” Morningstar writes. “We certainly don’t expect cities to become ghost towns in the long run, as some of the more hyperbolic commentary suggests.”

With a high-income resident base, apartment REITs have had collections between 97% and 98% since the start of the pandemic, which is only a slight decrease over normal patterns, according to Morningstar.

Morningstar expects that the combination of small occupancy declines, slightly lower rent collection levels and higher rent concessions will lead to low-single-digit same-store revenue declines for apartment REITs in 2020. It could be a couple of years for their rent rate growth to increase beyond inflationary levels.

While apartment REITs could see revenue declines, single-family rental REITs stand to benefit from the work-from-home trends. These companies generally own homes under $300,000 and less than 1,800 square feet, which should be attractive to the millennial generation. 

“Given that millennials typically lack the necessary capital for a down payment because of their high debt burdens, they will probably look to rent single-family homes when they move to the suburbs,” Morningstar wrote. “This is particularly true in many of the coastal metropolitan markets where the cost of renting is lower than homeownership, which supports high occupancies in single-family rental REIT portfolios and should allow these companies to pass along significant rent increases without much pushback.”

Residential REIT Invitation Homes is benefitting from these trends. In Q2, the REIT’s hit 97.5% occupancy, which was the highest in its history, according to Morningstar.

“If many office workers continue to work from home even as requirements lift, we believe that a portfolio of recently constructed single-family homes in strategically selected markets—like the one that Invitation Homes owns—can maintain a high level of occupancy and thus drive significant rent growth for several years,” Morningstar wrote.