Yardly McDowell is a new horizontal apartment building by NexMetro in Phoenix that has just begun leasing. The project, which was completed in 2023 and is currently in the leasing phase, has been built since then. One-bedroom units with private backyards rent for $1,624-$1,699 per month for 647 square feet ($2.51 to $2.63 per month).
Photo courtesy of NexMetroThere are two product types that are gaining share within the built-for-rent single-family (“BTR”) space, being 1) [+]
townhome communities. The two BTR categories that are growing the fastest are horizontal apartment communities and, 02011010townhome communities. This is based both on the number of completed units, as well as our market study book. Of course, traditional single-family developments (full-sized homes on individual lots) are coming out of the ground in large numbers as well, but the fastest growth right now is in these two “denser” categories.
The exhibit below shows the top ten markets ranked by the number of horizontal- apartment units delivered since 2016 (as of mid-2023). These kinds of rental units are usually marketed as “cottages,” and they offer two main advantages over traditional apartments: private outdoor space for each unit, and few or no shared walls.
“Horizontal Apartments” are developed on a single plat of land, but they are mostly one-story, and … [+]
… has the most activity in this product type.Data from CoStar through Q2 2023, analyzed by Hunter Housing Economics
apartments in that they are not detached, but they often have garages, which appeal to many renters (and they usually offer more interior space as well).Phoenix and Dallas-Fort Worth are the leaders, followed closely by Atlanta on the townhome ranking. Only a couple of Florida markets made the Top 10, as the wave of BTR is only now rising in the Sunshine State (but a lot more are planned for the next 12 to 24 months, as our studies indicate).[+]
Phoenix: Where It All Began
We’ll start with the 900-pound gorilla that was the birthplace of BTR: namely, Phoenix. Phoenix, especially the horizontal-apartment style of development, has been the center of built-to rent activity across the country since its inception. Single-family detached housing subdivisions for
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rent are the bread-and-butter type, but townhome communities built to rent and “cottages” are growing the fastest.
Hunter Housing Economics
The BTR business started out in Phoenix, born out of the distress of the Great Financial Crisis. Immediately after the GFC, investors were able to aggregate plenty of supply from foreclosures, but by 2012, they had exhausted much of that supply, and started to build whole new communities of homes for rent.
Increased competition has pushed vacancy rates higher in the three categories of rentals we are discussing here, as shown below, though the comparison between the second quarter and the fourth quarter does run into some seasonal differences. The increase in vacancy rates is fairly moderate so far, considering that Phoenix has been adding new head-to-head-competitive projects for years now. Market analysis is necessary case-by-case to determine the feasibility of BTR in any submarket in this market.Vacancy rates of stabilized properties in the Phoenix market, broken out by multifamily apartments, [+]
Data from CoStar, Analyzed by Hunter Housing Economics
With the addition of thousands of units of a similar type (plus a large number of traditional apartments still under construction), it is important for developers in this market to consider the quality of their location relative to better-located existing rentals. This will become increasingly important as we move into 2024. According to CoStar’s data, since 2016, about 35% of new multifamily builds in the West Valley have been horizontal apartments, compared to 13% for Phoenix overall. According to CoStar’s data, since 2016, about 35% of new multifamily builds in the West Valley have been for horizontal apartments, compared to about 13% for Phoenix overall.
Dallas-Fort Worth: Rapid Recent ExpansionThe northern reaches of the Dallas metro area in particular are attracting a large amount of built-for-rent (BTR) development. CoStar data shows that 1,056 multifamily horizontal units have been completed in the North Dallas Submarket since 2016. This makes it the busiest market in the nation for this product. While this might sound like a lot of new residences, let’s put it into perspective:[+]
Several new rental developments are planned north of Dallas. This submarket shows an example.
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The blue color indicates a built-to-rent project that is coming to market soon.
Hunter Housing Economics
apartments in the area.
Several BTR developments have either been developed, are in the process of being constructed, or are in planning stages. These communities are developed by well-known developers such as Canvas, BB Living and NexMetro/Avilla. In a fascinating contrast, DFW has only 4% horizontal multifamily construction compared to 13% for Phoenix. This tends to suggest that Dallas has a longer potential runway ahead of it than Phoenix before it starts to show any signs of over-saturation in this product type.
Spotlight on Atlanta: A Large Market Still in “Early Innings” for BTR
The BTR “wave” is just starting to hit the eastern states. Atlanta is experiencing rapid growth in the horizontal apartments segment. In the Atlanta market, Cherokee County and North Gwinnett, as well as the surrounding areas, are experiencing rapid growth in the horizontal apartment segment. Cherokee County has the most activity compared to the other submarkets. Northern Gwinnett County and the outlying suburbs of Gwinnett County are considered distinct submarkets, but the two parts of Gwinnett if taken together would be in first position.Data from CoStar[+]
Below are some middle-sized markets that are still in aggressive growth mode, with a lot of runway left in front of them. Huntsville is still gaining momentum with 1,093 completed units since 2016. Here are the CoStar numbers for 2o16 through mid-2023 deliveries:
Huntsville – AL 1,093
Greeley – CO 1,090
Nashville TN 1,020-
Las Vegas NV 931-
Orlando – FL 908
Within Orlando, the northwest quadrant has seen the greatest number (452) of new units.In Central Florida, by far two largest concentrations of horizontal apartments Here are the CoStar numbers for 2o16 through mid-2023 deliveries:[+]
Nashville – TN 1,020
Las Vegas – NV 931
Orlando – FL 908
Within Orlando, the northwest quadrant has seen the greatest number (452) of new
In Central Florida, by far the two largest concentrations of horizontal apartments are in Northwest
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Orlando and Osceola County.
Data from CoStar, 2016 through 2Q 2023
horizontal apartments, followed by Osceola County, with 407. Data from CoStar, 2016 through 2Q 2023
horizontal apartments, followed by Osceola County, with 407. The BTR leasing activity is also increasing in other areas of Florida. In the southeastern part of the Tampa housing market, 1,715 units were delivered. In South Florida, meanwhile, where developable land is in short supply, only about 2,000 such units were completed during that period (across Miami-Dade, Broward, and Palm Beach Counties combined).Macroeconomic trends are favorable for continued growth in built-to-rent of all types. Renting is becoming more popular among young families and other households as mortgage rates are now above 7%. The biggest challenge for developers of all BTR products is to obtain financing. It is especially true for [+]
right area
. The BTR segment is one of the most sought-after by investment firms in the coming years. However, they are more cautious than ever about the assumptions made for rent and lease-up.