BTR Has Outperformed Multifamily for the Last Five Years

It’s not just the pandemic. The build-to-rent market has been growing rapidly for the last several years. In fact, going back to 2017, BTR properties have outperformed multifamily, according to Dennis McGill, director of Zelman & Associates, who spoke on the fundamentals of the BTR market during Beyond the Basics of Build to Rent, a webinar hosted by Walker & Dunlop.

From 2017 to 2019 the blended rent growth of BTR properties averaged 4.1% from 2017 to 2019. During the same timeframe, multifamily properties had 3.2% rent growth. Growth in the BTR space only accelerated during the pandemic, outperforming multifamily ever quarter since the onset of the health crisis in 2020. Over the last four quarters, rents have increased 6.3%, an increase of 1.5x the rent trend prior to the pandemic.

The widest gap between BTR and multifamily was during the fourth quarter of 2020, according to McGill. The narrowest gap came in the third quarter of this year as the multifamily market rebounded from the pandemic. Multifamily had 8.2% blended rent growth during the quarter, while BTR product rents grew 8.6%.

While the gap narrowed, McGill cautioned that the data was not indicating that multifamily is catching up. “This does not capture the cumulative effect since the onset of the pandemic. We indexed our two data sets to 4Q19,” he said. “Single-family rents are up 9% since then, and they are almost 2% higher than the pre-pandemic trend. Adversely, even with the most recent surge in multifamily lease rates, blended rents are only 3% higher than in 4Q19 and are actually 2% lower than the pre-pandemic trend. Obviously, there is substantial variation depending on the urban and suburban mix.”

BTR also outperforms multifamily occupancy trends. Seasonally adjusted BTR occupancy is 98% for the third quarter 2021. “This is a record for our data and up a robust 210 basis points from 3Q19, said McGill. Multifamily occupancy was also a strong 96.2% for the same period—the highest occupancy in recent history for the asset class. However, McGill said that when adjusting for bad debt expense—a common theme following the pandemic—the occupancy rate falls. “Adjusting for the increase in bad debt expense, the occupancy figures moderate. The single-family sector would still be higher than in 3Q19, but multifamily would not,” he said. “This is something to keep in mind as eviction moratoriums end, stimulus fades and supply accelerates.”

With such strong and sustained fundamentals, it isn’t surprising to hear that institutional capital is increasing its exposure to the asset class. According to McGill, there is $75 billion of institutional capital for build-for-rent projects, and the vast majority was announced in the last 12 months. McGill added, “It is seemingly growing by the day.”