Demand for build-to-rent housing is expected to continue in 2023, despite recessionary fears, according to one industry watcher.
“This will be another ‘up’ year for BTR volume, but we are seeing somewhat slower leasing activity right now, reflecting recession fears,” says Brad Hunter, President, Hunter Housing Economics, in advance of GlobeSt’s spring multifamily conference in March, where he’ll serve as a panelist. “Some concessions are emerging, and we are seeing a complete flattening of rent growth.”
But Hunter says that while rents may go down a bit – his firm projects a “modest” 6% pullback – “by this Fall, we’ll see rent growth come back again, and probably fairly strongly.
“I’m expecting to see rent growth in the range of 5-6% per year starting in 2025 and possibly as early as 2024,” he notes.
As for demand drivers, they’re still there, he says: very few homes are being built nationally that target young families, and as millennials begin to have more children (a decade later than earlier generations) “the built-for-rent sector is stepping in to fill the void, offering young families a way to have a detached home with a yard, near good schools and parks in the suburbs.” Household formation rates, a key indicator of demand, were “subpar” in the second half of last year, but Hunter predicts they will likely resume at 1.3 to 1.5 million per year after recession fears fade, supporting the development of between 130,000 and 180,000 built-for-rent units per year.
From a regional perspective, “I expect the southeastern states to see continued strong demand and solid performance in BTR, even during 2023, but at an even greater level from 2024 to 2028,” Hunter says “Florida is going to be one of the strongest markets, given the strong in-migration there, but Georgia and the Carolinas will also see a lot of strong performance.”
The market that worries Hunter most? Phoenix, “the place where BTR was ‘invented.’
“If there is any market where localized oversupply is possible, it is within certain Phoenix submarkets,” he says. But “even there, after the (coming?) recession is over, things will work out fine.”
Check back soon for more insights from Brad Hunter and panelists at this year’s upcoming GlobeSt Multifamily Spring conference.