By Roland Murphy for AZBEX
In its latest report on the Build-to-Rent sector, Northmarq expects uneven performance across 2023.
The report predicts vacancy rates will increase, as deliveries are expected to hit the market faster than they can be absorbed.
As was reported in the recent BEX 2023 Midyear Update on Arizona Construction the tight capital market is leading developers to focus on finishing projects they already have in the pipeline while they wait to undertake new developments. (AZBEX, June 9)
The long-term view for the sector is favorable, however, as the labor market continues to perform better than expected and single-family for-sale prices continue to keep many potential first-time home buyers from entering the market.
Even though the vacancy rate is expected to show increases, the high degree of renter demand is still expected to support some degree of rent growth, even with BTR units already pricing at an approximately 35% premium over traditional apartments.
Given the tightened credit and equity market at the moment, construction financing is becoming more challenging to obtain, particularly from regional banks. Investment activity has also slowed, just as it has in traditional multifamily. Capitalization rates have been inching higher over the last several quarters and are currently averaging around 5.25%.
Phoenix remains the leading market in BTR construction, with an under-construction pipeline of almost 6,000 units.
The full report is available here.