Giant 400: Rental Apartments Poised For Liftoff

This article first appeared in the PB May 2008 issue of Pro Builder.

Peruse the tables on this page, showing the performance of the Top 10 single-family home builders compared to the Top 10 rental builders, and it's easy to see the rental market is in much better shape. Six of the 10 rental kingpins finished more units in 2007 than in 2006, while the single-family builders are all down.

"Rental is the flip side of ownership housing," says NAHB economist Dr. Bernie Markstein III. "Right now, with foreclosures rising and people reluctant to buy homes, the rental market is benefiting from the woes in ownership housing. Condo sales are falling for the same reasons as single-family detached, and when that happens in the condo market, a lot of those units wind up back in the rental market, at least temporarily." That phenomenon kept vacancy rates higher in some markets, but they're now dropping again.

Rental Darlings

Daryl Spradley, senior vice president of Maitland, Fla.-based Charles Wayne Consulting, says rental apartments will be the top performer among all types of housing over the next few years. And rental's appeal doesn't stop with housing. "Rental apartments will be the darling of the development industry," Spradley says, "over retail, industrial, office, everything. Rental produces the highest return of anything.

"There's not really a boom yet in Orlando's rental market, but that's only because so many condo investors are still trying to hang onto their units, by renting them — even at a loss," Spradley says. The hottest trend in that Florida market right now is mixed-use. "Within five years, we're going to see more town centers than there are towns in Central Florida," Spradley laughs. "There's just so much momentum toward mixed-use, with apartments at 30 to 40 units to the acre."

Markstein predicts another upswing in luxury renters-by-choice in many markets. "Since home appreciation rates are likely to be flat for several years to come, there's not as much motivation for young, high-income couples to buy," he says. Such couples may opt for well-located rental apartments and put off owning a home until prices really start to recover.


Rental builders often rise or fall precipitously in the Giant 400 rankings because their production is erratic. But this year, siz of the Top 10 rental Giants gained in unit completions - and all 10 gained in rank. Watch for rental builders to outperform ownership housing producers for the next couple of years.	The contrast between rental and single-family detached owndrship homes builders is dramatic. All of the Top 10 in SFD are public builders and all are down in closings, even though most dropped prices dramatically in 2007 to try to keep selling.