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
Sep 23, 2024 - Multifamily Developers Pull Back on New Projects
- High interest rates have increased the costs for new multifamily construction and reduced property values, prompting some developers to halt or delay projects, according to The Wall Street Journal. Multifamily housing starts involving five or more units fell 21.8% in July compared to July 2023 and were down 41% from their April 2022 peak. The drop in starts follows a boom in apartment building that began during the pandemic. This year, about 610,000 apartment units are expected to come online, the most in any year since the 1980s, according to data firm CoStar. However, as financing new projects has become costlier, CoStar expects new apartment supplies to slip to fewer than 350,000 units in 2025 and 275,000 in 2026. The influx of new apartment building has created an oversupply in some regions, leading to lower property values and weak rent growth, which has reduced developer and investor appetite for new projects.
- In August, the US Justice Department filed an antitrust suit against real estate software firm RealPage, alleging its technology enabled landlords to engage in price-fixing, boosting rents beyond market norms for millions of renters, according to The New York Times. The suit was filed in the Middle District of North Carolina and was joined by several states, including North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington. RealPage’s YieldStar software allows landlords to share rent, occupancy rates, and other data points that would otherwise be confidential. An algorithm uses the data to suggest rent rates, which the government suggests are often higher than competitive market norms. RealPage argues its software was deliberately developed to comply with the law, and the firm plans a spirited defense. The firm has said rent increases in recent years have resulted from other forces, including a nationwide housing shortage.
- Multifamily developers’ confidence declined in the second quarter of 2024, according to the National Association of Home Builders (NAHB) latest Multifamily Market Survey. The Multifamily Production Index (MPI) fell twelve points in Q2 2024 to 44 compared to the second quarter of 2023. The Multifamily Occupancy Index decreased by eight points to 81 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, and difficulties with getting projects approved. However, increasing signs of a weakening US economy may prompt the Federal Reserve to begin cutting interest rates before the end of the year.
- Studio apartments are getting smaller as tenants economize and developers wring more units out of limited space, according to The Wall Street Journal. Between 2014 and 2024, the average size of a studio apartment in the US shrunk by 10% - about 54 square feet – to about 445 square feet, according to RentCafe. Studios –the smallest apartment type in most markets – are typically self-contained units with no walls between living and kitchen spaces. Among all types of apartments, square footage has only dropped by 12 square feet over the past decade, according to RentCafe. Over the same period, the average two-bedroom apartment grew by 7 square feet, and three-bedroom apartments gained 19 square feet.
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