Apartment REITs: A Renter's Market

Summary

• Apartment REITs were among the weakest-performing property sectors for a second-straight year in 2023 - lagging even the battered office sector - despite delivering another year of mid-single-digit earnings growth.
• Following two years of record-setting rent growth, residential rents decelerated in 2023 alongside a broader cooling of inflationary pressures, with multifamily rents seeing a particularly sharp cooldown amid supply headwinds.
• The wave of pandemic-era development - started at a time when rents were rising double-digits - resulted in a record year of new deliveries in 2023 with similarly elevated supply levels.
• The pundit-predicted rental market "crash" has remained elusive, however, as demand has stayed surprisingly robust, driven by the combination of resilient job growth, homeownership unaffordability, favorable demographics, and elevated inbound immigration.
• Pockets of rate-driven distress have remained isolated to the most highly-indebted corners of the private markets, but this distress spells opportunity for well-capitalized REITs. While organic growth will be flat in 2024, conditions are becoming ripe for external growth via acquisitions.
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of RIET, HOMZ, ALL HOLDINGS IN THE INCOME BUILDER FOCUSED INCOME & DIVIDEND GROWTH PORTFOLIOS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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