RENTAL GROWTH MODERATING
REMI
The annual rate of rent growth in Canada moderated for the third consecutive month, with the average asking rent for all property types coming in at $2,174 in November. This represents a slight 0.2 per cent decrease from October’s high, according to the latest data from Rentals.ca and Urbanation.
“Rent inflation in Canada is slowly starting to moderate, a trend being led by a notable slowdown in rents in the country’s most expensive big cities of Vancouver and Toronto,” said Shaun Hildebrand, president of Urbanation. “Renters are adjusting to record high housing costs by shifting into less expensive markets,”
“Rent inflation in Canada is slowly starting to moderate, a trend being led by a notable slowdown in rents in the country’s most expensive big cities of Vancouver and Toronto,”
Studio apartment rents accelerated to an annual growth rate of 12.1 per cent in November, while one-bedroom apartments maintained the strongest annual rent growth at 13.6 per cent, although at a slower pace compared to previous months. Meanwhile, two-bedroom apartments saw a slowdown in annual rent growth from 11.8 per cent in October to 11.2 per cent in November.
Regional variations were observed, with Alberta leading in annual growth with a year-over-year increase of 16.1 per cent to reach an average of $1,695. British Columbia, despite having the highest average apartment rents at $2,582, experienced a 2.2 per cent decrease and a notable slowdown in annual growth to 6.5 per cent in November.
Edmonton surpassed Calgary as the leader in rent growth among Canada’s largest markets, with asking rents for apartments rising by 11.9 per cent from a year ago.
Notably, Vancouver and Toronto, the nation’s most expensive cities, experienced a sharp slowdown in rent increases. Vancouver’s average asking rents increased by 0.7 per cent annually to $3,171, while Toronto’s average apartment rents decreased for the second straight month, down 2.4 per cent to $2,913.
Canada’s 25 most expensive small and medium-sized markets are concentrated in British Columbia, Ontario, and Quebec, with Greater Vancouver and Greater Toronto dominating the top rankings. Côte Saint-Luc in Quebec remained the fastest-growing market for apartment rents in October, with a remarkable 29.4 per cent annual increase.
Average asking rents for shared accommodations in British Columbia, Alberta, Ontario, and Quebec reached a record high of $960, growing by 16.2 per cent over the past year.
SLOWEST APARTMENT VOLUME IN 30 PLUS YEARS
The Apartment Group - CFR
We have seen declines in other real estate sectors such as office, retail and land. However, we were waiting for signs and direction in the apartment market. Given the rise in interest rates demand for all asset classes have fallen and by a substantial margin. There is no difference here in the apartment sector and now the stats are in. Q3 2023 ranked the lowest volume in terms of sales and deals in over 3- years. There were only 4 deals done in the GTA in Q3 with a total value of around $25MM. This is down from $500MM in Q2 2023 and $345MM in Q3 2022. The average price per suite in Q3 2023 was around $282,000 which is down 15% from Q2 and down 25% from Q3 2022. While Cap Rates tightened slightly at around 3.7% from 4.0% in Q2, they are up 30% from a year ago. Drawing macro conclusions form a quarter of data is difficult and each quarter are influenced by many factors.
As of December 2023, when we look at the aggregated data for apartment sales in the GTA one trend is very clear – sales volumes/activity is WAY DOWN. Year to date data indicates that deal volume will be around $1BB in 2023 which is down 50% from 2022. The current average price per suite is around $320,000 which down form a year ago where it was $370,000. Cap rates too have moved up from around 3% in 2022 to 4.0% currently in the GTA.
One can conclude that the lack of volume has led to a softening slightly in pricing and cap rates. The reason is that the micro and macro environment for apartments has been the best that it has ever been today. Rental demand is skyrocketing and so are rental rates and at the same time most prudent owners are reducing expenses through utility sub metering or retrofit programs which means higher and growing NOI’s. Owners are sitting from a position of strength with growing revenues and declining vacancies. These owners if they sold today would not take a discount due to higher lending rates – even if they refinanced today at higher rates they are still in positive cash flow (less but positive). As such, the only deals which are occurring are for the most part owners who NEED to sell now for one reason or the other.
The next six months will an interesting time in the apartment sector. We will bring you more data as it unfolds.
BANK OF CANADA HOLDS RATES STEADY
BANK OF CANADA
The Bank of Canada held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening in December 2023.
The global economy continues to slow and inflation has eased further. In the United States, growth has been stronger than expected, led by robust consumer spending, but is likely to weaken in the months ahead as past policy rate increases work their way through the economy. Growth in the euro area has weakened and, combined with lower energy prices, this has reduced inflationary pressures. Oil prices are about $10-per-barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have also eased, with long-term interest rates unwinding some of the sharp increases seen earlier in the autumn. The US dollar has weakened against most currencies, including Canada’s.
In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year. The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices. Combined with the drop in gasoline prices, this contributed to the easing of CPI inflation to 3.1% in October.
With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed. Governing Council wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.
CFR - RECENT APARTMENT SALES
521-527 BAY STREET - MIDLAND - $2,700,000 / $117,500 PER UNIT / 6.75% CAP RATE
This is the sale of mixed use commercial and residential building 300 feet from the Midland Marina and the water front. It in includes 6 at grade commercial units and 17 residential apartment suites. Fully occupied this 0.23 acre site has three road frontages and is just west of the downtown commercial core. It is a frame building with no elevator, balconies or under ground parking. The commercial is fully occupied with long term and standing operators. The residential rents were over 80% below market. The properties were fully marketed by The Apartment Group and the buyer was a private investor.
2B ARLINGTON AVENUE - ST. CATHARINES - $7,900,000 / $197,500 PER SUITE / 4.35% CAP RATE
This is a 2.5 storey free standing rental apartment building and containing 40 suites and additional land for future development (potential for 78 more suites). Built in 1960's, this concrete building and is a walk up with no under ground parking. It has a hot water gas fired heating system and rents include all utilities (except Hydro). There is on site laundry and lockers (potential to add 2-3 suites). The building had strong rental upside and suites were above average in size. The property was fully marketed by The Apartment Group and sold to a private apartment investor.
70 SECOND AVENUE - ORANGEVILLE - $3,500,000 / $205,900 PER SUITE / 3.78% CAP RATE
This is the sale of a 17 suite rental apartment building dating from the 1960's. It has a brick and block exterior, double windows, flat roof and is of concrete construction. There are mostly large two bedroom suites in here. The corner asset is well maintained and well located on 0.70 acres. The building was heated by a gas fired radiant system and there is 12 parking spaces. This property was fully occupied with rental upside. The bulk of the tenancies are under the Affordable Housing Program. The property was fully marketed by The Apartment Group and sold to a private investor.
141 LINNWOOD AVENUE - KITCHENER - $7,350,000 / $229,700 PER SUITE / 4.75% CAP RATE
This is a 2.5 storey free standing rental apartment building and containing 32 suites at the end of a cul-de-sac on a large site. Built in 1950's, this concrete building and is a walk up with no under ground parking - only surface parking. It has a hot water gas fired heating system and rents include all utilities (except Hydro - sub meter program not all tenant pay own hydro). There is on site laundry and lockers. The building has strong rental upside. Only 14 suites have been "updated" in the past 5 years. The property was fully marketed by The Apartment Group and sold to a private apartment investor.
610-612 KING STREET EAST - HAMILTON - $1,750,000 / $125,000 PER SUITE
This is the sale of an old Victorian semi-detached home from the late 1800's which is the process of being gutted and renovated to include 14 self contained rental apartments. The Seller's commenced construction in 2022 and almost 65% of the work has been completed. Most of the remaining work is in the finishing off of the suites. The property was fully marketed by The Apartment Group and sold to a private apartment investor.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $7.0 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings than our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
MITCHELL CHANG
President & Owner,
Salesperson
Direct: 416-219-0436
mchang@cfrealty.ca
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner
Direct 416-417-9098
ldigianfelice@cfrealty.ca
JAKE RINGWALD
Salesperson
Direct 416-996-7713
jringwald@cfrealty.ca