There’s a potentially lucrative, although often overlooked, market niche for kitchen and bath design firms to harvest as a potential revenue source in 2023, particularly with traditional remodeling projects facing ongoing obstacles in the form of interest-rate hikes, inflation, recession fears and other headwinds.
The market niche in question is that of single-family rental (SFR) properties, a significant and promising subset of the nation’s construction and remodeling trade whose growth in recent years has exhibited a steadily upward trajectory, even in a recessionary climate.
Indeed, according to a 2023 market forecast issued recently by the National Kitchen & Bath Association, single-family rentals have become a critical component in today’s kitchen and bath industry, accounting for an estimated 13% of total kitchen and bath remodeling spending, an impressive $8.5 billion this year alone.
The NKBA’s forecast pegs the SFR market at roughly 15 million units, a 3.1-million-unit increase since 2001. And while remodeling and new-construction projections remain tepid and laced with uncertainty, the SFR market – including both existing rental units and built-for-rent new homes – is projected to exhibit steady growth through at least 2025, the NKBA predicts.
All of which makes perfect sense, considering current market dynamics.
With inventories remaining historically low, and homeownership becoming increasingly less affordable, the demand for single-family rental homes has spiked. Coupled with the fact that new construction hasn’t addressed current demand, single-family real estate has become an increasingly popular option for institutional investors, particularly with many prospective renters seeking single-family residences that offer more amenities, privacy and space than the typical apartment.
Renters, according to estimates, currently represent a growing and increasingly influential market segment, comprising more than one-third of the U.S. population. Reflecting those numbers, a growing number of single-family dwellings – some 7% of all single-family home starts in 2022 – are being specifically built to meet the needs of renters.
According to the NKBA, institutional investors are spending roughly $3 billion annually in both renovating newly acquired properties and maintaining existing properties – all while increasingly using higher-quality products and materials because the investors expect to own their SFRs for 15 years or more, ultimately protecting the value of their investment with the assumption that tenants will remain in the properties longer.
Investors who purchase an older home for rent typically spend about 10% of the purchase price on value-added upgrades, while more than 70% make both kitchen and bath upgrades prior to offering the home to tenants, according to the NKBA.
That, too, makes sense, since kitchen and bath renovations made by investors reportedly lead to higher incremental rent than other upgrades, yielding an estimated $2.40 in incremental rent, on average, for every dollar spent, housing analysts say.
According to the NKBA, occupancy rates for SFRs remain at nearly full capacity – an occupancy rate that demonstrates the ongoing strength of the SFR market niche. And with housing inventory expected to remain low, the demand for SFR properties is likely to remain strong, especially given these units’ larger average footprint compared to other rentals.
All these trends are expected to continue in 2023 and beyond, which is where the revenue opportunity lies.
SFR properties, like private homes, clearly require the services of knowledgeable, well-trained kitchen and bath design professionals to execute desired upgrades. Kitchen and bath design firms owe it to themselves to look beyond the traditional market niches they serve and tap into the stable and growing renovation market for single-family rental properties. ▪