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The build-to-rent (BTR) sector continues to evolve as it expands from the early years of institutional investment following the Great Financial Crisis.
At that time, the BTR market consisted of predominantly single-family detached communities in further out locations of Sunbelt markets. Since then, investors and developers have not only shifted their focus from the Southwest, Texas, and the Southeast to other parts of the country, but they have started offering a wider array of product in various submarkets to capture more diverse segments of renter households.
Based on Zonda’s proprietary Census dataset of nearly all planned, under-construction, and active BTR communities, we can analyze the trends in both regional expansion and the shift from lower to higher-density product throughout the country. Zonda’s recently released Rental Housing Outlook provides unique insights into BTR based on this only-of-its-kind dataset.
As noted, the early phases of BTR communities were focused primarily in the Sunbelt markets, due to the strong demand for housing based on steady population and household growth. The increase in demand was helped by an ample supply of developable land in these regions, particularly in further out locations, combined with increasing affordability challenges in the for-sale market.
The map below shows the concentration of active BTR communities in the top Sunbelt markets of Phoenix, Dallas, Atlanta, Houston, and Charlotte. These markets have close to or well over 10,000 active BTR units, with pipelines of thousands more under construction or planned.
Despite the consistent increase in active BTR projects in these markets, they still account for just a fraction of the overall rental (multifamily and single-family) supply. In the top 10 markets that Zonda tracks in its Rental Housing Outlook report, BTR communities account for roughly 1-3 percent of total rental housing stock. This modest supply indicates the potential for even greater growth as renters become increasingly more familiar with this often superior product based on their life stages.
Couples and families alike often benefit from the added features of BTR homes such as attached garages, backyards, and higher bedroom counts compared to traditional multifamily apartments.
As the supply of active communities began to grow in many of these Sunbelt markets over the past few years, investors and operators looked to diversify their community footprints to expand into areas with less competition and more pent-up demand for BTR product.
The Midwest became a compelling region because of the relative lack of communities and competition, despite the first BTR community starting in the region prior to institutional investments. Moreover, as for-sale prices continued to climb, these historically affordable markets became less attainable for first-time homebuyers.
Many of the under-construction communities that will come to market over the next couple of years are concentrated in markets such as Chicago, Indianapolis, and Columbus as the map below illustrates.
Our data was further validated in an exclusive intervew for Zonda’s Rental Housing Outlook clients, with Shannon Hersker, senior vice president debt and equity at Northmarq. She also highlighted that the Midwest has seen a sharp uptick in construction and acquisition activity. In addition, she provided insights that include the increase in family office and pension fund equity in BTR deals and that projects that can obtain capital and come out of the ground in 2025 are positioned well for success.
Zonda’s database also tracks planned BTR communities. The Northeast region, which has historically been dominated by higher-density multifamily apartments, is now experiencing a large increase in planned BTR communities that will complement the supply of apartments and provide renters with greater options when it comes to rental housing.
The New York metro area, which is one of the largest apartment markets in the country, is now in the top 30 for future BTR communities. Additionally, Virginia and Maryland have seen a notable increase in planned communities as shown in the map below. Hersker reiterated these markets in the interview, noting she has seen increased interest in Baltimore and the Washington, D.C., area.
BTR Product Pivoting to Higher Density Options
Not only has BTR extended into a wider geography, the offerings within these markets have also grown as investors and operators look to provide solutions to more renter households. Originally, the sector focused primarily on single-family detached homes with garages and full backyards. Now it is pivoting to a greater offering of horizontal apartments and higher-density townhomes.
Townhome communities can be in closer-in locations to provide more of a lifestyle component versus traditional single-family detached.
Of the active BTR communities throughout the country, roughly 40 percent are single-family detached. As developers look to increase the number of communities in closer-in locations and to provide higher-density product, this segment is projected to decrease to approximately one-third of all future communities. The lion’s share of this pivot will be captured by townhome communities in future planned BTR projects as the diagram below illustrates.
Beyond townhomes, cottage-style homes are expected to provide about 20 percent of all active, under-construction, and future communities. These single-level homes provide a more affordable option in primarily further out locations with a centralized amenity. Moreover, they are generally more pet-friendly than traditional apartments.
The BTR sector continues to evolve. What started as an affordably priced rental product in further out locations of Sunbelt markets that offered traditional SFD lifestyle has now converted to a significantly wider array of products, lifestyles, and price points across the country.
With affordability a challenge and newer generations valuing more flexibility, these communities should remain a strong option for first-time households, more financially constrained individuals, and relocators as well as those that don’t want the responsibility of maintenance and upkeep of an owned home. The growth in product and locations should bode well for the future success of BTR communities as it steadily expands across the country.
Keep up with the growth of the build-to-rent sector with Zonda’s Rental Housing Outlook.
