Rental apartment market appears to be on rebound
Investors? search for yield outweighs effect of more restrictive legislation
EVAN DUGGAN
The Vancouver Sun
Investors’ appetite to buy rental apartments in the Vancouver region appears to be bouncing back after a first half to 2019 that saw many buyers waiting on the sidelines amid uncertainty in the market, one brokerage house says.
Demand for apartment buildings in the region has been down this year, said Lance Coulson, an executive vice-president with CBRE in Vancouver. He said provincial and municipal policy interventions aimed at improving renters’ rights and tamping down renovictions had pushed some potential buyers to the sidelines.
“There were a lot of things going on in the market that created some uncertainty,” said Coulson, whose firm recently released its national multi-family overview report. “A number of investors were on the sidelines … wanting to see what 2019 was going to bring.”
Overall, national investment volumes for apartment buildings have climbed for four consecutive years, reaching an all-time high of $8.3 billion in 2018, according to the report. Canadian investment volumes through the first half of 2019 have also been strong and the sector is currently on pace to reach the second-highest yearly investment volume total on record.
It’s a different story in the Lower Mainland. Apartment sales reached a total of $1.4 billion in the Vancouver region last year. But total apartment sales deals for the first half of this year totalled just over $400 million, according to figures provided by CBRE. “Based on a few deals that have sold since June, and what I believe is currently in play, I estimate that total sales for year-end 2019 could be in the $850-million range,” Coulson said.
Among the recent tenancy law changes, the B.C. government amended its Residential Tenancy Act last year to require landlords to increase eviction notice periods, boost compensation, and provide first right of refusal to tenants in cases of unit renovations. Vancouver’s city council, in its Tenant Relocation and Protection Policy, also increased compensation for tenants who are forced to move due to renovations, with compensation tied to how long the tenants lived in the unit.
Other cities, such as New Westminster and Port Coquitlam, now use their business licensing system to halt some renovictions, potentially including daily fines or the loss of a landlord’s business licence for lack of compliance.
The sum of various policies gave investors and apartment owners a lot to digest, Coulson said. “It was just easier (for some investors) to do nothing.”
But Coulson recently attended an apartment building investment conference in Toronto where he heard from large institutional investors, who are showing renewed interest in buying Vancouver-area buildings.
He said his firm just arranged a deal that saw Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) purchase The Point, a newly built 98-unit rental building on 201 Street in Langley. He said the midsummer sale, at $39 million, was one of the largest this year in the region. CAPREIT is one of Canada’s largest residential landlords and has 64 buildings in the Lower Mainland and Victoria areas, according to its website.
The sluggish start to the year for investments also likely stemmed from the expectation that interest rates would climb.
“(But), the bond rate has come significantly down and many think (interest rates) could actually go lower, which is helping our market, specifically, when these investors are looking at their returns,” Coulson said.
“The pulse is changing a little bit, which is positive,” he said.
Through all of 2018, 155 apartment buildings sold in the Lower Mainland, according to Goodman Commercial, a firm that specializes in apartment building sales and publishes the Goodman Report.
Fifty-six buildings were sold in the first eight months of 2019 in the region, said David Goodman, a principal with the firm.
“For 2019, we are averaging a total of seven buildings sold each month,” he said. Spread over the remainder of this year, the average would suggest a total of 80-90 building sales, roughly half of the 2018 deal totals.
He said their analysis suggests the average price per rental unit has declined by 10 to 13 per cent in 2019, pushing prices back to 2017 levels.
One steady factor in the market has been demand from tenants.
Vancouver’s regional population continues to rise by about 40,00050,000 people per year and the cost of home ownership remains well out of reach of many residents, making renting the only option.
Coulson said the rental vacancy rate remains under one per cent in many parts of Vancouver, but the market is starting to ease slightly for renters.
“Some (landlords) are saying they have hit kind of a plateau now, or that some of their units are taking longer, and they believe that tenants have more choice.”
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