Canada’s multifamily housing market robust: report

Vacancy rates below 10-year average, rents on the rise: CBRE

Mario ToneguzziCanada’s multifamily housing market is the most robust it has ever been, , according to CBRE’s new Canadian Multifamily Mid-Year Update.

Apartment buildings are practically full from coast to coast and rental rates are at or near 10-year highs in almost every market, according to CBRE.

The commercial real estate firm’s report said the national average multifamily vacancy rate ended 2018 at 2.4 per cent, below the 10-year average of 2.6 per cent. And average rents for purpose-built rental units have grown by 4.4 per cent annually at the national level, and by five per cent in Toronto and 7.1 per cent in Vancouver.

“The multifamily segment’s ability to generate consistent cash flows with low levels of volatility has always made apartment buildings an enticing option for investors, but the combined strength of tenant demand, rental growth, and investor interest is unprecedented,” said CBRE Canada vice-chairman Paul Morassutti in a news release. “Demand drivers, including a growing population and high home ownership costs, coupled with a lack of meaningful rental supply, are fuelling income growth at a pace that we have never seen in many Canadian markets.

“Traditionally viewed as a stable, defensive asset class, the multifamily sector is now benefiting from market fundamentals that are arguably as good as they have ever been, and we don’t expect them to change in a material way, recession or not. That’s great news for investors; for renters, not so much, as they will continue to experience higher rents and lower vacancy as supply remains constrained.”

CBRE said total annualized returns for the Canadian multifamily sector were 9.8 per cent as of first quarter of this year.

“Hefty returns” have enticed investors, with multifamily investment volume reaching record levels for four consecutive years, including an all-time high of $8.3 billion in 2018, said CBRE, adding that Canada’s population growth is outpacing all other G7 nations. 

“Relative to other global cities, rental inventories in major Canadian markets are limited. High-rise developers in recent decades have chosen mainly to develop condos versus purpose-built rental units. The high cost of land and other financial considerations have generally made rental projects less profitable. In Calgary, Edmonton, Ottawa and Kitchener-Waterloo, over 50 per cent of all high-rise units under construction are condos. In Toronto, 89 per cent of high-rise units under construction are condos, while in Vancouver it’s 76 per cent,” added CBRE.

Mario Toneguzzi is a Troy Media business reporter based in Calgary.

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