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Single-Family Rental Outlook Remains Positive Despite 2023 Headwinds
Single-family rental operating fundamentals outperformed many sectors in 2023, but fell short of elevated expectations, Green Street says in a new report on the sector. However, the five-year growth outlook for market rent and occupancy is largely unchanged, notwithstanding the downside to ’23 estimates.
“Pandemic-related impacts on bad debt and evictions were slower to normalize than expected and weighed on top-line growth, and expense growth surprised negatively – rising nearly 10% for large institutional landlords,” Green Street said.
The Newport Beach, CA-based consulting firm expects ~4% market rent growth from 2024 through 2028 as the sector benefits from 1) a widening affordability gap between the monthly cost of owning versus renting; 2) inadequate savings for a down payment among many renters; 3) outsized 35-44 year old population growth; and 4) limited supply growth.
Although landlord pricing power should hold up, expense growth will remain a challenge. Green Street forecasts mid-7% expense growth for the sector in ’24 due to outsized real estate taxes, insurance, and accumulated deferred maintenance costs from years of low turnover. Even with high expense growth, NOI is expected to average 5% growth per annum over the next five years, which ranks toward the top of the roughly 20 U.S. property sectors Green Street covers.
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