Single-Family Rental & Build-to-Rent Communities Are Meeting Demand for Larger Units

By The ArborCrowd Team
Jun 10, 2022

The single-family rental (SFR) and build-to-rent (BTR) asset class has become the ideal solution for many apartment renters who want to upsize their living spaces.

In the previous decade, apartments generally consisted of studios, 1- and 2-bedroom units and the average unit size declined approximately 100 square feet, according to a report by RCLCO Real Estate Consulting. In fact, in cities such as New York City and San Francisco, where space is limited and comes at a premium, it’s not uncommon to find micro apartments, which consist of apartments that range between 100 and 500 square feet. With shrinking apartment sizes, many large and growing families in dense cities are unable to find adequate space.

In 2019, John Burns Real Estate Consulting analyzed Census Bureau data and found just 11% of apartments had three or more bedrooms. Recognizing the demand today for larger living spaces, sponsors have begun increasing apartment sizes in newly constructed properties, according to The Wall Street Journal.

While sponsors are playing catchup to the demand for larger units, SFR/BTR communities are by design ready to accommodate the need for additional space. According to John Burns, 65% of SFRs had three or more bedrooms, and the consulting firm cited larger floor plans as the reason why 45% of renters planning to continue renting surveyed by Freddie Mac preferred to relocate to an attached or detached SFR property.

Why Large SFR/BTR Floor Plans Are Appealing to Renters

Large floor plans are highly sought-after for a variety of reasons, including shifts caused by the COVID-19 pandemic, such as the trend of remote and hybrid working, meaning tenants now require more space for home offices.

In addition to the pandemic’s impacts, perhaps the most influential factor favoring large floor plans has been the millennial generation coming of age and forming families.

With more than 72 million people, millennials are the most populous generation in the U.S., according to the Pew Research Center. Many millennials want to purchase homes for their expanding families, but simply can’t afford to due to high prices. Additionally, it can be challenging to identify and purchase a home in today’s market because of a national housing shortage.

SFR/BTR Demand Fueling Sector Growth

Homebuying may continue to be challenging for many families in the near-term. The Federal Reserve has begun to aggressively raise interest rates to combat high inflation, resulting in the average 30-year fixed rate mortgage rate increasing to more than 5% in May — the first time in over a decade, according to Freddie Mac data, making debt payments more expensive and further increasing costs to be a homeowner. The Fed is expected to continue raising rates for the remainder of the year.

Meanwhile, due in part to the high demand for larger units, more institutional investors are entering the SFR/BTR space. More than $45 billion of institutional capital was invested in the SFR space in 2021, according to John Burns Real Estate Consulting, and BTR construction starts totaled a record 51,000 units through the end of 2021, a 15.9% increase from the prior year, according to Arbor Realty Trust’s Q1 2022 SFR Trends Report.

The trends driving the demand for larger rental units are expected to continue for the foreseeable future, which bodes well for the SFR/BTR sector.