Slowing rent growth due to oversupply and softening demand are weighing on single-family rental (SFR) operating margins and smaller landlords are more vulnerable to margin pressure, Fitch Ratings reported. Mounting revenue and cost challenges underscore the importance of operating efficiency and cost control for institutional SFR platform credit quality.
The rating agency noted that U.S. SFR rent growth has moderated over the past three years. National SFR rents rose 2.3% year over year in July, according to Cotality, down from 3.1% growth in the prior 12-month period and 5.0% in the 12 months ending July 2024.
The Cotality figures are consistent with Fitch’s forecasts of 2%-3% rent growth. Markets such as Chicago (5.1%) and New York (3.7%) outperform the national average, while several core institutional SFR markets in the Sunbelt have comparatively weaker gains, reported Fitch. Meanwhile, Yardi Matrix reported flat SFR rent growth Y-O-Y in September.
“With slower revenue growth, institutional operators are increasing efforts to control costs while maintaining asset quality,” according to Fitch. “Higher tariffs, namely 50% tariffs on steel, aluminum and copper products, as well as 10% tariffs on timber and lumber imports, will affect the availability and costs of key home repair and construction components, placing upward pressure on SFR operator expenses.”
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