Higher interest rates, rising house prices, better employment ratios, and reluctance to own houses due to prior foreclosures are all factors pushing up the demand for rental housing. This is opening up opportunities for residential real estate investment trusts globally, say financial advisors at Frost & Sullivan.
Their analysis shows rent growth and decreasing vacancy rates will further boost the profitability of REITs.
Frost & Sullivan’s report on the global residential REIT industry is based on a study of 108 REITs, and reveals that the market earned revenues of $23.23 billion in 2012. Key profitability ratios such as return on equity and earnings before interest, taxes, depreciation and amortization (EBITDA) margins rose in 2012, and this trend is expected to continue.
“North American companies dominate the list of top performers in the global residential REIT industry, which is not surprising given that they have been in the industry longer than their European and Asian counterparts,” said Frost & Sullivan Financial Analyst Bharath Meenakshi Sundaram. “In the next three to five years, however, countries such as Australia, France and Belgium are expected to witness more activity in this industry.”
Successful companies in the REIT domain follow several best practices. One key factor is selecting the right location and properties for acquisitions. Leading firms have in-house acquisition teams that are always on the lookout for properties that are located in areas with easy access to workplaces, schools and retail markets.
Moreover, some organizations pass on only sustainable increases in lease rates in order to maintain a lower tenant turnover. By doing so, they also build a sense of community around their brand. Customer service, including having a 24-hour call center, maintenance of apartments, and seasonal requirements such as regular clearing of snow, play a key role in retaining tenants and maintaining higher occupancy rates.
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