Michael Ferreira, the managing principal of Urban Analytics. (Courtesy Urban Analytics)
The apartment sector in Western Canada is poised to grow this year with several key demographic fundamentals driving the market and industry executives expecting a new influx of people into big-city cores.
At the virtual Western Canada Apartment Investment Conference on April 13, Michael Ferreira, the managing principal of Urban Analytics, said one of the biggest factors driving demand in Vancouver, Calgary and Edmonton over the next few years will be the increase in immigration.
“With the borders being closed, with the travel restrictions in place, in particular with international students not being able to come in person and take classes in person – doing that remotely from afar – that certainly has a significant impact on demand,” he said.
“As we start to see the borders open, travel restrictions ease, we anticipate with the increased new target for immigration in Canada . . .a 17 per cent increase in the target for new immigrants coming into the country, will have a significant impact on all three markets that we’re in.
“Overall, I think we’re going to see a much more healthy rental market moving beyond 2021 than we’ve seen over the past couple of years. And particularly with the economic growth that we’re seeing in these markets, I think we’ll continue to see a good, strong demand for rental product in all Western Canadian markets.”
Urban exodus trend unlikely to continue
Increases in study permit holders and temporary foreign worker permit holders will also drive the rental market, and Ferreira expects a current trend which sees residents leaving populated downtown cores to reverse itself.
“We’ve all heard about the migration away from the urban centres of our metro regions across Canada, across the U.S. It’s a global phenomenon,” said Ferreira. “What we do anticipate is that we will start to see a return of people back to cities.
“I suggest that once we get back to a more normal work – I’m not suggesting everybody’s going to be going back to the office en masse – but I do anticipate that we will see substantial numbers of workers going back to offices in the downtown cores of the cities.”
If many of those workers have to return to a commuting lifestyle to get to their offices on a near-daily basis, “I think we’ll see a bit of a reverse migration back to the urban cores of the city.”
The Vancouver apartment market
Ferreira said Urban Analytics is tracking 176 new purpose-built rental projects in Vancouver with 16,600 units. There are 1,927 available units. According to the Canada Mortgage and Housing Corporation, the rental vacancy rate in Vancouver was 2.6 per cent in 2020 which was up from 1.1 per cent in 2019.
“We’re seeing an increase in supply but still not enough to really impact vacancy rates and rents across the market. We do have a significant number of projects that are in the pipeline that are contemplated and looking to come into the market over the next few years,” said Ferreira.
“The challenge is those projects aren’t getting approved fast enough and being brought to market fast enough to have any significant impact on vacancies throughout the market.
“We’re just not building sufficient new rental accommodations across Metro Vancouver to meet the demand that we’re seeing currently and certainly not enough to meet the demand we anticipate we’re going to see as we move out of the pandemic and we get to some form of normalcy beyond 2021.”
The Calgary apartment market
In Calgary, Urban Analytics is tracking 87 new purpose-built rental projects comprising 11,280 units. There are 1,893 available units. The rental vacancy rate was 6.6 per cent in 2020, which was a significant hike from 3.9 per cent in 2019.
“Looking at the pipeline of projects in the Calgary market, no shortage of product in the pipeline. In total, there’s 72 projects with well over 14,000 units that are moving through the approvals process,” said Ferreira.
“Under construction there are 28 projects with just under 6,300 units coming. So over the next couple of years we’re anticipating another 25 projects coming to market which was on pace to what we saw this past year.
“What we do see in Calgary is once these projects that are currently under construction come to market we do anticipate there will be a little bit of a lull, because we do see the development community there perhaps pausing a little bit just to let the market absorb the amount of the product that’s been brought onto the market the past year and the amount of product that’s perhaps still to come onto the market in the next couple of years.”
The Edmonton apartment market
In Edmonton, Urban Analytics is tracking 201 new purpose-built rental projects with 16,167 units, of which 2,478 units are available. According to the CMHC, the rental vacancy rate was 7.2 per cent in 2020, up from 4.9 per cent in 2019.
Research indicates there are 67 projects being contemplated in Edmonton consisting of 14,259 units, with 25 projects under construction comprising 4,328 units.
In a panel discussion at the conference, Samuel Dean, senior vice-president, capital markets, multifamily for JLL, said lower demand and higher supply has driven the climb in the rental vacancy rate in Edmonton.
“I think we’re starved for human interaction. We’re going to see a return to the core and a push to work/live,” he said.
Western market observations
Paul Chaput, senior vice-president, investments at Institutional Property Advisors, said that as vaccinations roll out and the economy starts to kick into gear again that will stem the tide of higher supply and lower demand in Calgary which has been causing vacancy to rise.
Mark Goodman, principal at Goodman Commercial Inc., said he believes mortgage rates will remain low and vacancy rates in Vancouver will drop again as the pandemic eases.
“We have a supply problem here in Metro Vancouver. We still have the challenge of delivering new purpose-built buildings . . . There is extreme demand to build rental. Finally the sun, the moon, the stars have all aligned to actually make it economically feasible,” said Goodman.
“The challenge that we’re finding right now is the bureaucracy, the time frame, the permitting process is just really challenging and so if our planning departments and municipalities don’t create an environment conducive to building rental, a lot of these developers will just move back to building condos where it’s an easier proposition to move forward.”
This content was originally published here.