SFR Operating Margins Challenged by Slowing Rent Growth

Slowing rent growth due to oversupply and softening demand are weighing on single-family rental (SFR) operating margins and smaller landlords are more vulnerable to margin pressure, Fitch Ratings reported. Mounting revenue and cost challenges underscore the importance of operating efficiency and cost control for institutional SFR platform credit quality.

The rating agency noted that U.S. SFR rent growth has moderated over the past three years. National SFR rents rose 2.3% year over year in July, according to Cotality, down from 3.1% growth in the prior 12-month period and 5.0% in the 12 months ending July 2024.

The Cotality figures are consistent with Fitch’s forecasts of 2%-3% rent growth. Markets such as Chicago (5.1%) and New York (3.7%) outperform the national average, while several core institutional SFR markets in the Sunbelt have comparatively weaker gains, reported Fitch. Meanwhile, Yardi Matrix reported flat SFR rent growth Y-O-Y in September.

“With slower revenue growth, institutional operators are increasing efforts to control costs while maintaining asset quality,” according to Fitch. “Higher tariffs, namely 50% tariffs on steel, aluminum and copper products, as well as 10% tariffs on timber and lumber imports, will affect the availability and costs of key home repair and construction components, placing upward pressure on SFR operator expenses.”

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 16-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 7-10 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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