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 362,100 workers and generate over $134 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 15, 2023 - Multifamily REITs Cite Challenges in Q3 Reporting
- Several of the country’s largest multifamily real estate investment trusts (REITs) outlined some challenges facing apartment owners in their third-quarter financial reports, according to Bisnow. The lack of affordability in the single-family home market has benefited apartment building owners as would-be homebuyers stay in rentals longer. AvalonBay Communities and Camden Property Trust each reported that in Q3, only about 10% of tenants moved out due to a home purchase; the long-term norm is in the mid-teens. However, rising multifamily inventory in some markets is slowing rent growth, and some REITs reported having to make more rent concessions to secure fresh leases. REIT firm UDR said it expects flagging rent growth to persist into 2024.
- A mild recession, a tight financing environment, and large volumes of new units coming online are expected to slow multifamily construction activity in 2024, according to a recently revised forecast by Yardi Matrix. By the end of 2023, 487,512 units are forecast to have been added for the year. An additional 536,145 units will follow that in 2024. While the number of planned units in the development pipeline in the third quarter was up nearly 20% year-over-year, it was only 0.6% higher than Q2 2023. The weak quarter-over-quarter growth in Q3 was a significant change compared to the strong growth seen during the pandemic and is a signal that multifamily construction could be on the cusp of a slowdown.
- The tight housing market and lack of affordability are not only making finding a home difficult for average homebuyers, it’s also a challenge for investors who buy homes for the rental market, according to The Wall Street Journal. Large firms that lease out single-family homes are having trouble finding houses at price points and financing terms that still leave room for a profit. The inability to buy enough homes comes at a time when demand for single-family rentals is strong, as high interest rates and home prices have priced many would-be homeowners out of the market. In late 2021, landlords with 1,000 properties or more accounted for 2.4% of home sales; in Q2 2023, that percentage fell to 0.4%.
- In addition to higher interest rates and vacancies, landlords are facing rapidly rising insurance costs, according to The Wall Street Journal. The frequency of natural disasters, inflation, and a dwindling reinsurance market are pushing insurance premiums up at a time when building values and rental income are falling. On average, insurance costs for commercial real estate have increased 7.6% per year since 2017, according to Moody’s Analytics. High insurance costs are also affecting landlords who secured long-term fixed-rate mortgages well before interest rates began rising.
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