SFR Growth Will Outpace These Asset Classes in 2022

Single-family rental growth is expected to outpace multifamily, office, retail, storage, and hospitality growth by 2022, according to a new report by Walker & Dunlop.

The single-family rental and build-for-rent sectors are among those with the strongest growth across all asset classes, with institutional investor interest in the space booming. While traditionally the SFR market has been dominated by individual or small-scale investors, the Great Recession changed all that—and the trend has only accelerated under the weight of the COVID-19 pandemic, which threw new migration patterns into the mix. 

And where that demand has grown, institutional capital has followed. Walker & Dunlop estimates the SFR market to be valued at around $3.4 trillion—a staggering number, to be sure, when compared to the entire multifamily market, which is estimated at $3.5 trillion. 

Institutional investors currently comprise less than 2% of SFR (as opposed to 55% of multifamily), but as more young families and retirees look to rent SFRs with great amenities and big yards, more investors are turning to the SFR space to expand their portfolios.  

Capital is also flocking to the emerging build for rent submarket in this space. BFRs are purpose-built housing to be operated as single-family rental investments, similar to traditional multifamily housing, and all of the homes within a BFR are contiguous, Walker & Dunlop notes. An estimated 5 to 10% of all new builds are BFRs.

“BFR is a relatively new concept among SFR investors, national homebuilders, and developers,” the report states. “It has become increasingly popular to investors in recent years, including traditional multifamily developers. While the BFR market only makes up about 5 percent of new homes built, it is rapidly growing and will continue to do so as new entrants begin BFR operations.”

As the BFR movement picks up steam, a new class of operators, national homebuilders, and institutional equity providers are looking to it as a stand-alone investment model. Homebuilder Lennar launched a $4 billion SFR platform with lead investor Centerbridge in March, and JP Morgan Asset Management made a $625 million equity commitment in 2020 to American Homes 4 Rent to develop approximately 2,500 homes in high growth markets across the West and Southeast.