Business for Sale Industry Economics
2005 - 2020
2020 - 2026
Operators in the Apartment Rental sector performed well for the majority of the five years leading up to 2020; however, industry growth has slowed in recent years.
The sector has undergone systemic reform since the subprime mortgage crisis. Prior to the recession, most real estate investment was made by institutional owners (those who buy 10 or more properties), while currently, the majority of rental properties are purchased by a single individual and leased by a non-owner.
Historic lows in homeownership, declining rental vacancy rates, and increased demand for rental units have enabled landlords to raise rents, boosting income and profit development.
As a result, research forecasts market sales to increase by an annualized 2.5 percent to $180.1 billion over the next five years, with a 0.8 percent decrease in 2020 as rent growth slows due to the COVID-19 (coronavirus) pandemic.
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Operators in the Apartment Rental market have seen rapid growth in the five years leading up to 2020. However, industry success has softened in recent years, with vacancy rate decreases slowing in 2019 and a stasis emerging in 2020 as a result of the coronavirus pandemic.
Rents fell during the first half of the year as vacancies increased, but in recent months, rents have reversed direction marginally as vacancy has fallen, avoiding further decreases in industry sales in 2020 alone.
The Apartment Rental industry is expected to decline over the next five years due to an increase in the rental vacancy rate, which suggests a decrease in demand for industry goods compared to consumer supply.
Present conditions indicate that there is an oversupply of premium apartments, which has allowed for growth during this timeframe due to a supply crunch in the medium- and low-end of this industry’s retail offering, driving up rents.
However, this oversupply at the top of the market is projected to remain unsold and unrented, depressing rent inflation and causing prices to soften over time, diminishing industry revenue.
Most notably, the deterioration in business results should be seen in the light of the global coronavirus epidemic. Depending on just how serious the impacts are on the nation’s work market, with unemployment and claims surging in 2020, the expected downturn in business sales could be understated right now.
As more Americans losing their income, rent affordability is expected to fall at a faster pace, prompting Research to revise its estimates much lower.
The rental vacancy rate is predicted to rise by an annualized 3.3 percent during the next five years, stifling industry sales growth and profitability; this statistic may rise much higher after the forbearance duration expires when evictions increase.
As a result, market income is forecast to slip at a 3.1 percent annualized rate to $153.7 billion over the next five years.
This industry’s operators serve as lessors of buildings used as apartments or homes. Owner-lessors of residential buildings and establishments that rent real estate and then serve as lessors by subleasing it to others are industry participants. Apart from flats, the industry also rents out single-family residences and townhouses.
The apartment rental sector is characterized by a high capital intensity. According to research, $1.58 will be spent on capital for every $1.00 spent on labor in 2020.
The creation and acquisition of buildings account for the majority of the industry’s capital spending, with some complexes including hundreds of rental units.
Capital expenditures include any renovations or refurbishments to a structure. Smaller companies, which often run a single unit, have fewer capital expenditures, although they can still be large when compared to sales.
Wages make up a minor fraction of costs when compared to capital expenses. Large firms can also use property management businesses to outsource labor, lowering labor costs.
Capital intensity has dropped slightly in the five years leading up to 2020, as rising demand for flats has resulted in increased employment.
The revenue volatility in the apartment rental market is low to moderate. The major sources of revenue are rental income, interest income, and capital gains.
All of these variables are affected by economic swings. Real estate assets improve in value and rental revenue increases during periods of economic expansion.
The value of underlying real estate assets and occupancy rates are also factors that influence rental rates. Rising rental revenue is the result of higher asset prices and occupancy rates.
At the same time, in a robust economy, capital gains grow because lessors are able to sell the property at a higher price than the initial purchase price.
Due to its reliance on rental income, which is often locked in by lease agreements, the industry’s overall revenue is very consistent from year to year.
Individual operators’ revenue, on the other hand, might vary dramatically from year to year owing to profits and losses from property sales.
Those that sell assets see revenue spikes, but these spikes aren’t sustainable since companies can’t sell all of their assets all of the time. Furthermore, such swings are smoothed out at the industry level.