The robust state of Canada’s multifamily market has been highlighted in a report from CBRE.
Its Canadian Multifamily Mid-Year Update paints a rosy picture with the national average multifamily vacancy rate at 2.4% at the end of 2018, below the 10-year average of 2.6%.
Average rents for purpose-built rental units have grown by 4.4% annually at the national level, and by 5.0% in Toronto and 7.1% in Vancouver; meaning strong returns for investors and property owners (total annualized returns of 9.8% as of Q1 2019). The multifamily sector also has the lowest average national cap rate of any other asset class in Canada, at 4.41%.
The good returns have enticed more investors into the sector with an all-time high of $8.3 billion in 2018.
“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,” says CBRE Canada Vice Chairman Paul Morassutti. “Demand drivers, including a growing population and high home ownership costs, coupled with a lack of meaningful rental supply, are fueling income growth at a pace that we have never seen in many Canadian markets.”
Canada’s strong population growth is the highest in the G7 and with 80% of this coming from immigrants who typically rent before buying a home, this creates a strong base for rental apartments.
With the federal government aiming to admit 1 million immigrants through to 2021, the outlook is good.
“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,” said Morassutti. “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.”