Originally published August 2022.
Did anyone notice a trend in the residential REITs’ 1st quarter 2022 earnings calls?
From a very high level, renowned C-suite executives from some of the top residential REITs across the country had very positive outlooks for 2022.
Rental rates for new and renewal leases continue to roll up;
Occupancies are hovering at almost 100%, leaving frictional vacancy;
Same-store operating metrics moved higher on a quarter-over-quarter and year-over-year basis;
Traffic is still very high as demand for housing continues with its upward trajectory;
Renovated units as well as new supply is being added by landlords to meet the demand; and
Many are seeing lower resident turnover.
At face value this seems like a prosperous time. Many executives mentioned that they continued to see these robust trends in the second quarter. Now we are almost halfway through the year and the geopolitical climate continues to heat up around the world. Anyone who has tried to buy a house or even go to the grocery store has experienced the inflationary tug at their wallets and savings accounts.
So why is it that so many C-suite executives across all of the REIT sectors have such a positive outlook? Yes, REITs traditionally are a hedge to inflation. However, the stock market has been extremely volatile and the cost to construct or renovate real estate is significantly more expensive – even the labour is more expensive and more difficult to obtain. The unemployment rate is lower, hovering around 3.6%, but it’s a different employment landscape with many people opting to work remotely and forego their daily commutes. And what if we imagine that the 3.6% unemployment rate is double or even triple what is reported, assuming you omit discouraged or marginalised employees.
