Progress Residential on the State of the Single-Family Rental Market

Single-family rentals were perhaps the most talked-about real estate vertical in 2021. Many investors that typically target multifamily and other real estate sectors took a peek at SFR, largely due to its unique product offering.

And as the SFR space continues to emerge, it has its nuances with regard to target markets, supply landscape and operating models. 

“There are more than 15 million single-family rentals in this country, and the industry is undergoing a critical transformation that will continue to bring professional management services to a large and underserved consumer segment,” said Dave Feldman, executive vice president of strategic operations at Progress Residential. “We’ll continue to see a surge in demand for quality affordable housing, and within that, a surge in demand for quality affordable rental housing.”

Progress Residential is the largest privately owned owner of SFRs with more than 75,000 homes in its portfolio.

Feldman indicated that a significant part of SFR demand is being fueled by an aging millennial generation and an aging-in-place boomer demographic, combined with an increased preference to rent. SFR attributes (yards, garages, more space) closely align with the needs of these demographics. These drivers are expected to persist for the next 10 to 15 years. 

SFR Markets are Under-Supplied

On the supply side, most markets are under-supplied of all inventory, most notably entry-level price points, especially in markets with high net migration trends. 

A recent RentCafe study reports there are approximately 14,000 built-to-rent homes set to open their doors in 2022, up from 6,740 last year.

Even as SFR owner-operators continue to invest in strategies like Build-To-Rent communities to increase the supply of single-family rentals, demand is expected to continue to outpace supply.

The impact of this supply/demand imbalance is strong occupancy, extended length of stay, and continued movement in home prices and rents, which will be a primary macro theme for the SFR market in 2022. 

Continued Consolidation

While the SFR sector has its share of owners and operators, consolidation could continue to be a theme over the next 12 months, Feldman said. 

“We expect to see continued consolidation of under-scaled portfolios whose investor-owners see an attractive exit opportunity as strong capital flows target the SFR sector,” Feldman said. 

“This also provides a benefit to the resident, as they will be serviced by a more scaled operation that provides an enhanced service offering and resident experience.” 

Focus on Customer-centric Organizations

“Looking ahead, developing improved systems, processes, and product offerings to enhance the customer experience will be a center-stage objective for many of the more established owner-operators in the SFR sector,” Feldman said. 

This is further enabled by a substantially more developed vendor ecosystem today versus the early years of the industry’s formation, with groups specializing in innovative technology and customer service solutions that can be leveraged to drive operating efficiency and customer experience. 

The SFR space will continue to make substantial investments in talent, technology and qualified vendor partners to drive advancements that will benefit residents, he said. 

Potential Market Expansion

Initially, the SFR sector pursued investments throughout the Sun Belt region, which was characterized by outsized population and job growth. Looking ahead, expect to see investment into smaller, more diverse metros with similar macroeconomic fundamentals to those observed in relatively larger markets. 

“Now, you have the aging millennial demographic and aging-in-place boomers in ‘Any City’ USA who are entering their household formation years and have a need for more space or are entering retirement and seek the flexibility associated with leasing,” Feldman said. “This creates significant opportunities for market expansion.”

The SFR sector is ever-evolving, and as investors from other real estate product-types allocate capital to SFR, the overarching theme of the industry remains the same, according to Feldman. 

“We provide access to quality locations and housing options that might otherwise be out of reach to a customer in need,” he said. 

“It’s a unique and underserved part of the rental-housing market that can have an immensely positive impact on customers, neighborhoods and the industry as a whole.”