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COVID-19 Accelerates Trend of Millennials Moving from Apartments to SFRs

Big SFR operators reported slight growth in leasing rates in the months since the lockdowns started.

COVID-19 is accelerating demand for single-family rentals, as some renters are feeling a greater desire to get away from the density of cities.

“Once they’re in the single-family homes, they’re finding they have more space and this facilitates a better work from home environment,” said CEO of SFR REIT American Homes 4 Rent David Singelyn during his company’s REITweek presentation. “This provides the long-term benefits. So, while COVID-19 was the inspiration to move to single-family rentals, these individuals now see the benefits of single-family rentals over multifamily, benefitting demand in the long-term.”

Both American Homes 4 Rent and Invitation Homes experienced low- to mid-single digit growth in new leases and higher occupancies since the initial stay-at-home ordinances were implemented. This trend differs from apartment REITs with portfolios in urban environments, where occupancies have been declining and new lease growth has decreased year-over-year in May by single digits in certain metros, according to the research team at Green Street Advisors, a commercial real estate research and advisory firm.

“We are seeing a significant increase in demand for rentals in suburbs, on top of what was already a strong demographic shift and need for rentals occurring pre-COVID-19,” says Mark Peterson, director of the build-for-rent division at SVN | SFRhub Advisors, an online marketplace for single-family rentals. “The SFR operators we work with have reported significant increases in year-over-year tenant applications for each home that becomes available.”

SFR operator Tricon Residential reported that same-home occupancy remained at a record level of 97.6 percent, while annualized turnover was below historical levels, at 20.2 percent for the month of May, according to a June report. Average blended rent growth remained at 5.1 percent, driven by 8.9 percent growth in new move-ins and 3.5 percent growth on lease renewals. The company collected 96.1 percent of May rents by the end of the month. Fewer than one percent of Tricon's SFR residents have requested a rent deferral because of economic hardship. The company operates in the middle market.

American Homes 4 Rent reported that it collected 95 percent of April rents and 82 percent of May rents through May 5, 2020.

Invitation Homes reported that portfolio occupancy rose to 97.5 percent in May, up by 90 basis points year-over-year and by 30 basis points compared to April. The company also reported continued demand, with a same-property net effective blended rent growth of 3.4 percent in May, an increase of 20 basis points over April, according to a June report.

“I see more rent softness in apartments, where it is easier to overbuild and units are perfect substitutes for each other. Single-family rentals are more unique in nature and it is a lot harder to increase supply,” says Gary Beasley, CEO of Roofstock, a marketplace for investing in single-family rental homes. “I suspect we will see slower but positive rent growth in SFR and flat to down rents in apartments in the near-term.”

Even in markets like Houston, Orlando, Fla. and Las Vegas, which have been the most impacted by Covid-19’s economic fallout, operators have been able to realize positive new lease growth in recent months, according to the research team at Green Street Advisors.

“I expect this trend to continue as the millennial generation continues to age and forms families and have children and requires more space,” says Jonathan Ellenzweig, chief investment officer at Tricon Residential. “So, I think part of this trend really relates to the aging of the millennial demographic and not necessarily just COVID-19.”

The research team at Green Street Advisors agree that COVID-19 will likely not create a long-term structural change in renter behavior. But, it will likely accelerate some of the positive demographic drivers for the SFR sector that were already on the horizon before the pandemic. The millennial demographic, which is now starting to age out of its prime apartment renter years and into prime single-family homeownership and SFR renter years, should drive that demand.

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