The Great Acceleration: Single-Family Rentals Thriving in Phoenix

August 7, 2020

ROI Properties The Great Acceleration

Our new blog series, The Great Acceleration, focuses on trends that have been pushed forward in commercial real estate sectors, from retail and entertainment to office, multifamily, hotels and industrial properties. To ensure that you are alerted when new articles come out, make sure to follow R.O.I. Properties on LinkedIn.

While the booming numbers in multifamily properties have grabbed a lot of press, a less-well-publicized trend has taken shape in the years since the Great Recession: the rise of single-family rentals. Small homes and standalone condos for rent have been around for decades, but they have surged in popularity in Greater Phoenix. In addition, we are now seeing an uptick in entire subdivisions developed as all-rental communities—and trying to compete with multifamily-as-usual. NexMetro, with locations throughout metro Phoenix, Texas and Colorado, Lennar’s Next Gen, with locations in Anthem and Phoenix, and Christopher Todd Communities, with locations throughout the Valley, are among the notable brands seeking to capitalize.

Nationally, residential rental properties took a hit from coronavirus-caused economic weakness, but Arizona has defied the trends. Across the U.S., single-family rents grew 2.4% in April but only by 1.7% in May—the lowest growth rates since July 2010, according to CoreLogic’s Single-Family Rent Index. In contrast, among the 20 metro areas surveyed, Phoenix had the highest year-over-year rent growth in May (maintaining its streak since late 2018), with an increase of 6%, followed by Tucson (+3.5%).

As with all things COVID-19, the unknowns going forward include what happens with the overall economic environment, as well as specifics such as employment and the expiration of increased unemployment benefits. Still, we anticipate that the appeal of single-family rentals will persist through the recovery and beyond.

What’s Driving the Rise in Single-Family Rentals?

  • Financial factors. Affordable homes have become tougher to find in Phoenix due to low supply and high demand, compounded by our nation-leading population growth. For many would-be homeowners, pricing may leave them locked into renting for a period of time. Due to the uncertainties resulting from the COVID-19 outbreak, others may not be confident enough in their job or financial status to make a move at the current time. A single-family home is often a better lifestyle fit than traditional multifamily.
  • Comfort factors. Although the worst of coronavirus appears to be over, questions remain about how long it will be with us. As a separate dwelling, a single-family home offers peace of mind: having your own space rather than shared amenities, knowing who’s coming, going, and touching surfaces, and even a self-contained HVAC system rather than sharing air with adjacent units.
  • Appeal to investors. While developers such as NexMetro, Lennar and Christopher Todd are investing serious capital, the single-family home offers advantages to smaller investors as well. A single-family home can provide cash flow and tax benefits, with much more liquidity and flexibility than multifamily properties—while still capitalizing on Phoenix’s need for rental options for those who cannot or do not want to purchase a property of their own.

Read previous articles in the Great Acceleration series:

Due to the coronavirus and other economic factors, the Phoenix real estate market is rapidly changing. To put an expert advocate on your side for buying, selling, or leasing residential and commercial real estate, contact R.O.I. Properties at [email protected] or 602-319-1326.

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