BTR Asset Class Poised to Become Institutionalized

Cushman & Wakefield believes that build-to-rent properties could soon break out from its niche asset class status to something bigger, based on investor interest and apartment trade-out data showing its residents are redefining what they consider a “rental home.”

Currently, BTR is just 1% of the overall multifamily market. A new report from Cushman & Wakefield also touts that the product “continues to gain steam” from developers, as well.

“This is simply part of institutionalizing an asset class…” and if recent demand trends hold, the tide “will likely quickly turn” driving outsized buyer interest in the years to come, offering compelling reasons to place capital today.”

The firm acknowledges that BTR performance is volatile due to its small inventory – nearly 20% of the existing BTR inventory is under construction, roughly four times the level of the broader multifamily market.

“However, that 20% of inventory is down nearly half from the peak and amounts to less than 40,000 units nationally,” according to the report.

The sector typically sees substantially more absorption than traditional multifamily, according to Cushman, and since 2020, BTR product has averaged about 3% absorption as a share of stock – topping out at nearly 5% earlier this year – whereas market rate product has averaged 0.6% of its inventory.

That implies this supply wave is unlikely to last long, it said.

The turnover rate for BTR is considerably lower than market-rate apartments. Renters typically identify BTR properties as more of a “home” and are more likely to renew in place. Yardi reports a 64% renewal rate for BTR/SFR units, about 10% higher than the overall market.

Given that inflation has driven up turnover costs by nearly 20% YoY, property owners can save significantly if their residents aren’t moving out.

Cushman & Wakefield has a 10,000-unit national BTR portfolio and is a third-party manager of 178,000 apartment units.

It said it is seeing a “resurgence of late” in trade-outs for BTR units compared to the overall portfolio. That’s consistent with data from CoreLogic’s Single-Family Rent Index, which shows outperformance for the SFR/BTR sector (2.6% YoY growth, in line with the pre-pandemic average) compared to the traditional multifamily market, which is up just 1.3%, well below the historical average.