Drivers for purpose-built rentals include historically low cap rates, high demand from investors, low interest rates and low vacancy rates.
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Purpose-built rentals have been a hot topic in the media lately and a big topic of conversation amongst industry professionals in Canadian cities across the country. Drivers for these purpose-built rentals include historically low cap rates, high demand from investors, low interest rates and vacancy rates as low as 0.6% in Guelph, 1.2% in Victoria and 1.4% in Vancouver. The combination of these factors has made rentals an attractive investment opportunity and an increasingly important piece of the multi-family residential real estate sector.
In Vancouver, the Rental 100 incentive program is an additional driver which has propelled the increase in construction and transactions of purpose-built rentals buildings. Rental 100 is a policy that encourages the development of communities that are 100% rental housing, secured to remain rentals at a capped rental rate for a minimum of 60 years. The incentives include development cost levy reductions, parking requirement relaxations and increased density. These incentives have seen several purpose-built rental projects recently launch in Vancouver, including The Level by Onni, The Lauran by Westbank and Bosa False Creek by Bosa Properties.
With land on the rise and developer profit margins being squeezed on multi-family development, purpose-built rentals could be an exciting opportunity for developers in the Fraser Valley. Despite the Fraser Valley’s size, all of its municipalities combined account for less than 10% of the 115,000 rental units in Metro Vancouver and there is only a handful of new ones in development. The aforementioned drivers (low cap rates, high demand, low interest rates and low vacancy rates) exist in the Fraser Valley, but currently, there are no established incentive programs across any of the region’s municipalities. At Frontline, we are seeing an increase in clients exploring purpose-built rentals as a viable development option, particularly along the proposed Light Rapid Transit routes and in the densely populated areas of South Surrey, Surrey City Centre, Clayton and Willoughby. As we’ve seen in Vancouver, a rental incentive program would only accelerate the growth in the rental sector.
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