Lessors of Residential Buildings
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 54,000 lessors of residential buildings and dwellings in the US lease single-family homes, apartment buildings, and town homes. The industry includes owner-lessors and firms that rent real estate and subsequently sublet property to others.
Vulnerability to Trends in the Housing Market and Economy
The housing market is cyclical, and market conditions affect property income and values and the ability to collect rent.
Capital-Intensity of Operations
The residential owner-lessor business is extremely capital intensive.
Industry size & Structure
The average residential lessor operates out of a single location, employs about 6-7 workers, and generates $2.8 million in annual revenue.
- The residential lessor industry consists of about 54,000 firms that employ 370,000 workers and generate over $153 billion annually.
- The industry has a low level of concentration; the top 50 companies account for about 30% of industry revenue.
- Large firms with residential lessor operations include Essex Property Trust, AvalonBay Communities, Equity Residential, and Mid-America Apartment Communities. Some large firms are vertically integrated and operate as residential real estate developers.
- Despite the size of the industry, many large firms operate regionally.
Industry Forecast
Lessors of Residential Buildings Industry Growth
Recent Developments
Nov 22, 2024 - Single-Family Built-for-Rent Construction Rises
- In the third quarter of 2024, there were about 24,000 single-family built-for-rent (SFBFR) housing starts in the US, up 41% from the same period in 2023, according to National Association of Home Builders analysis of US Census Bureau data. During the four most recent quarters, 92,000 SFBFR homes began construction, which is up 31% compared to how many were built in the previous four-quarter period. While the historical four-quarter moving average market share for SFBFR is about 2.7% (1992-2012), SFBFR’s current four-quarter moving average market share is about 7.5%. Single-family built-for-rent homes provide an alternative for consumers who want more space but are challenged by a lack of affordable housing inventory, high interest rates, and downpayment requirements in the for-sale market.
- In the third quarter of 2024, the US apartment vacancy rate stopped rising for the first time since the third quarter of 2021, according to data firm CoStar and reporting by The Wall Street Journal. The average US vacancy rate in Q3 2024 was 7.9%, unchanged from the previous quarter after steadily rising for 11 consecutive quarters. The apartment sector added more than 1.2 million new units over the past two years, and moderating vacancy rates may signal that those apartments are filling up. Industry observers suggest that if the US economy remains solid and home prices remain high, landlords could be able to raise rents next year at rates that recently have been prevented by elevated supply.
- Multifamily developers’ confidence was mixed in the third quarter of 2024, according to the National Association of Home Builders (NAHB) latest Multifamily Market Survey. The Multifamily Production Index (MPI) rose two points in Q3 2024 to 40 compared to the third quarter of 2023. The Multifamily Occupancy Index decreased by seven points to 75 over the same period. An MPI or MOI reading of 50 or more indicates that multifamily production or occupancy, respectively, is growing. Multifamily developers’ headwinds include a tight lending environment, higher borrowing costs, regulations, and land availability. The NAHB forecasts that multifamily construction activity will remain weak for about another year amid a significant volume of projects under construction. Multifamily construction is expected to return to more robust growth near the end of 2025.
- US multifamily development activity appeared to have hit bottom by the end of Q3 2024, according to property data firm Yardi Matrix. At the close of Q3 2024, multifamily construction starts fell to an estimated annualized rate of 325,000 units, or about 50% below the levels seen in 2023 and 2022. While the Federal Reserve’s interest rate cuts should make it easier to secure financing, long multifamily development lead times will likely prolong the market’s recovery. Yardi Matrix expects multifamily completions to remain high through 2025 and into early 2026 before slowing significantly by mid-2026 and 2027.
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