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 52,400 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 $2.5 million in annual revenue.

    • The residential lessor industry consists of about 52,400 firms that employ 357,900 workers and generate over $129 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
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Nov 21, 2022 - Multifamily Developer Confidence Drops
                              • Two key performance indicators of the multifamily housing market showed signs of weakness in the third quarter of 2022, according to the Multifamily Market Survey (MMS) released by the National Association of Home Builders (NAHB) in November. The Multifamily Production Index (MPI) – which measures the construction of subsidized low-rent units, apartments for-rent at market rates, and for-sale condominiums – fell 10 points to 32 in Q3 2022 compared to Q2. The Multifamily Occupancy Index (MOI) measures the industry’s perception of existing apartment occupancy, and the Q3 MOI dropped 15 points to 45 from Q2. While the number of multifamily units under construction is at the highest level since 1972, developers are seeing warning signs ahead amid high costs for materials, land, and financing.
                              • Weak consumer confidence may be slowing new household formations and rental demand, according to rental data tracking firm RealPage. More renters moved out of apartments in the third quarter than moved in, marking the first time that has happened since 1992. Year-to-date apartment demand through Q3 was down by more than 47,000 units. Even so, RealPage suggests apartment fundamentals are sound; vacancies rose one percentage point in Q3 but were at a healthy 4.4%. Lack of affordability could be tempering demand, and economic uncertainty may be prompting would-be renters to have a wait-and-see approach to changing their living situation. However, if inflation cools and job and wage growth hold up, rental demand may rise in spring 2023 due to pent-up demand.
                              • After two years of pandemic-fueled residential rent increases, US apartment rent growth is slowing nationwide, according to Redfin. Median asking rent for apartments in October 2022 rose 7.8% year over year, marking the smallest annual increase since August 2021. October was also the fifth month in a row when apartment annual rent growth slowed. Single-family rent growth also decelerated for the fifth consecutive month in October, up 10.2% from a year earlier, according to CoreLogic. The slowdown in rent growth has been uneven. Rents are growing more slowly for expensive properties but have been more stubbornly high for lower-priced ones, according to CoreLogic.
                              • US housing affordability fell to its lowest point since the Great Recession in the third quarter of 2022 amid rising mortgage rates, inflation, low housing inventory, and high home prices, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI). Only 42.2% of new and existing homes sold between July 2022 and the end of September were affordable for households with a median income of $90,000. The third quarter of 2022 marked the second consecutive quarterly record low for housing affordability in more than 10 years. According to the HOI, the median home price in Q3 2022 was $380,000, down from the all-time high of $390,000 set in Q2 2022. Some potential home buyers are pausing their purchase plans as they hope to wait out high interest rates, and others are simply priced out of the market – both scenarios are boosting demand for rentals.
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