Multi-family rental market booms as demand chases short supply
Nearly $3 billion of Metro Vancouver purpose-built rental properties exchanged hands last year, finds report
Peter Mitham
Western Investor
The sum represents a 37 per cent increase from last year, even though the number of properties changing hands totalled 155, just five more than in 2017. The average price per suite increased 23 per cent, to $530,401.
“The real story behind the stats is all about the dirt,” Mark Goodman said. “The rarity of land throughout Metro Vancouver, coupled with investment growth in the condo and rental sphere, continues to drive our markets.”
While strong demand for rental accommodation allowed investors to enjoy good cash flow in the past, the motivation today is increasingly about redevelopment opportunities. Supply can’t keep up with demand, and an aging stock suited to redevelopment in rental-friendly municipalities means many properties’ land values have risen – in some cases, Goodman said, “almost beyond recognition.”
Deals in the West End, for example, broke the billion-dollar mark as 21 buildings comprising a total of 1,373 suites sold.
The strong activity put paid to mid-year analyses that saw a slowing market for multi-family properties.
Avison Young, which tracks sales $5 million and greater, felt that political uncertainty in the run-up to last October’s civic elections would combine with government efforts to cool real estate markets and rising interest rates to cool deal activity and pricing.
“The likely pause in the market will allow for potentially better pricing to be achieved on properties than what has been available recently,” Avison Young opined in its mid-year multi-family report. “Purchasers will gain more certainty and a greater understanding of what pricing the market can support.”
While this wasn’t the case in Greater Vancouver, political uncertainty remains.
Goodman reports that some investors are shying from investing in purpose-built rental properties as a result. However, with no new land being created and the development environment still fraught with hurdles and delays, short supplies and strong tenant demand seem poised to buoy opportunities for investors.
Civic support
“City of Vancouver is doing far more than any other city in the region to both protect and increase rental housing, and is a leader nationally in creating new rental housing,” a sunny summer press release from former Vancouver mayor Gregor Robertson stated last June, notwithstanding industry criticisms of the lengthy approval process for projects. “The delivery of new rental housing in the city is at levels not seen in 40 years.”
The press release went on to note proudly that “roughly 50 per cent of all rental housing under construction in Metro Vancouver is within the city of Vancouver” (though many feel Vancouver shouldn’t be shouldering the region’s housing crisis solo).
Year-end Canada Mortgage and Housing Corp. (CMHC) figures bear out some of those claims.
Construction of rental housing in the city reached its highest level in 30 years in 2018, with 3,433 units of market and non-market rental housing started. This represented 53 per cent of the regional total of 6,425 starts. Five years ago, that proportion was 38 per cent.
Total Vancouver rental housing starts between 2014 and 2018 represented 45 per cent of the region’s starts.
Meanwhile, in Kelowna…
Rental construction has also been strong in Kelowna, where Mission Group is set to launch its seventh and final U-series building at the University of British Columbia’s Okanagan campus.
U-Eight, as the building’s known, will offer 90 units to investors. The intention for the units is that they’ll be rented to students seeking accommodation adjacent to campus. The campus itself has just 1,700 student beds for nearly 10,000 students. Completion is set for fall 2020.
The units stand against total rental starts in Kelowna last year of 541, the second-highest tally of rental starts in 30 years, according to CMHC data. Rental starts peaked in 2017, with 1,393 units commenced citywide.
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