Location is the most important factor when determining the value of real estate. This also appears to be true for vacancy rates of purpose-built rental properties across Canada. Depending on where your property is located, you could be either turning away potential tenants in droves or begging them to fill your empty suites.
“Since last year, the supply of apartment units in the primary rental market increased more than the number of occupied units, causing the vacancy rate to increase slightly,” said Anthony Passarelli, Senior Market Analyst, CMHC. “That said, regional trends across the country were considerably different, roughly offsetting one another at the national level.”
According to the 2016 Canada Mortgage and Housing Corporation’s (CMHC) Rental Market Report, the average purpose-built apartment vacancy rate in Canada’s 34 larger centres increased from 3.3 per cent in October 2015 to 3.4 per cent in October 2016. The report provides data and analysis for the primary and purpose-built rental market, as well as the secondary rental market that includes condominiums and other rental units.
“Considerably different” is an understatement, as vacancy rates are below 1 per cent in some markets and around 10 per cent in others. Many factors influence these figures, including the rising cost of homes, the availability of rental properties and competition from rental condominium apartments.
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British Columbia Major centres in British Columbia have some of the lowest purposebuilt apartment vacancy rates in Canada. For example, Victoria and Abbotsford-Mission are at 0.5 per cent, Kelowna is 0.6 per cent, and Vancouver is 0.7 per cent.Turnover rates are also below the national average. “Vacancy rates are persistently low across Metro Vancouver and other regions of the province with the problem being acute in markets like Vancouver, Victoria and Kelowna,” said David Hutniak, CEO, LandlordBC. “Further exacerbating the situation, in some jurisdictions, is the high cost of land and construction as well as the challenges associated with existing redevelopment moratoriums, zoning anomalies, development application approval timelines, etc. So it’s a very challenging market to develop new purpose-built rental.” Today, condominiums (known as strata title properties in BC) are a necessary source of rental housing. However, this market is facing the same challenges. Vancouver’s rental condominium vacancy rate is 0.3 per cent, the lowest in the country. Given that condos are typically newer builds and more expensive than purpose-built rental properties, they do not necessarily provide better options for tenants.
“New condos in Vancouver, which are now typically being sold for $2000 per square foot, aren’t going to result in more affordable rentals, let alone available rental units at all,” said Hutniak. “The real solution is new purpose-built rental buildings, and lots of them.”
Alberta Alberta’s purpose-built rental vacancy rate is significantly higher than the national average at 8.1 per cent. Calgary (7.0 per cent) and Edmonton (7.1 per cent) are lower than the provincial average (and yet still quite high). The decline in world oil prices has had a significant impact on Alberta’s economy. Massive layoffs in the oil patch industry caused many people to seek employment in other provinces. Before the economic slowdown, new purpose-built apartments (and condominiums) were being built at the highest rate in 25 years.
“All of these factors – the economy, high unemployment rates, lower in-migration, increased numbers of new apartment units and condominiums – have all contributed to Calgary’s high rental vacancy rates,” said Gerry Baxter, Executive Director, Calgary Residential Rental Association. “While CMHC’s 2016 October Report indicated a vacancy rate of 7 per cent, we believe that it was closer to 8 to 10 per cent based on what we were hearing from our members.” Calgary’s condominium apartment vacancy rate is above the national average at 4.4 per cent, although it was 4.9 per cent the previous year. Many condominium units were completed over the past couple of years, and about one third of available units become rentals. This has also led to higher turnover rates, as tenants have been purchasing condominiums or homes. “To offset high vacancies, landlords have been forced to offer incentives, including a reduction in rent,” said Baxter. “As condominiums are newer and usually have more amenities than apartments, they generally command a higher rent. But the economy and all the other factors mentioned earlier have resulted in condo and other high-end rental properties reducing their rents. This has likely resulted in many people seeking to upgrade their living accommodation by moving into condos.”
Saskatchewan Saskatchewan has some of the highest vacancy rates for purpose-built rental properties in Canada. Saskatoon is the highest at 10.3 per cent, while Regina is at 5.5 per cent. Saskatchewan’s turnover rate is also higher than the national average. The province’s natural resource sector has greatly affected Saskatchewan’s economy, as well as vacancy rates.
“The large amount of new construction of single-family homes and condos has increased the housing supply in Saskatoon,” said Chanda Lockhart, Executive Officer, Saskatchewan Landlord Association. “We are seeing job losses, and folks are unable to rent. Combined with condos not selling and being brought back into the rental market, those two factors have driven up our vacancy rates.”
The supply of purpose-built apartments has increased from new construction, which means more availability for the market. This has affected Saskatoon’s condominium rental vacancy rate (3.1 per cent), which is somewhat higher than the national average.
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“While vacancy numbers have climbed over the last several months, there is optimism that the numbers will begin to steadily decline,” said Jamie McDougald, President, Saskatchewan Landlord Association. “The approval of the Keystone XL Pipeline has stimulated the oil sector and the tempered construction of new apartments will serve to moderate supply levels.”
Manitoba At 2.8 per cent, Manitoba and Winnipeg have a lower vacancy rate for purposebuilt apartments than the national average. This is down slightly from the previous year, but significantly higher than years past, when it was at or below 1.5 per cent. There has been little change in the number of occupied rental apartment units year to year, as weaker employment conditions offset higher net international migration. “We believe that the vacancy rate will be going up – we will be getting colder – for the next year or two,” said Avrom Charach, Vice President, Kay Four Properties (and spokesperson for member of the Professional Property Managers Association of Manitoba). “This is tied to a small amount of new developments coupled with low mortgage rates.” Turnover rates in Manitoba were above the national average. Winnipeg’s condominium apartment rental rate is 1.8 per cent, which is lower than the purpose-built rental vacancy rate. According to the CMHC, about 18 per cent of condominium apartments are made available for rent in Winnipeg. “With Winnipeg’s reasonably affordable purchase prices for condos and homes, people are moving toward ownership right now,” said Charach. “I believe that the drop in condo rates is due to low mortgage rates. I only see this changing when mortgage rates go up.”
Greater Toronto Area and Southern Ontario Many factors contribute to the decrease in purpose-built rental vacancy rates in the Greater Toronto Area (GTA) and Southern Ontario. These include the improving economy, the rising cost gap between owning and renting, and increasing international migration. Demand is outstripping supply, particularly in the GTA, London and Ottawa. Weaker job market prospects for youth are exerting upward pressure on vacancy rates. However, the rising cost of home ownership is keeping people in rental housing. “An improving provincial economy, eroding ownership affordability and rising international migration drove the Ontario vacancy rate to the lowest level since 2001,” said Ted Tsiakopoulos, Ontario Economist, CMHC.
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The GTA has seen an increase of 35 per cent in the new primary rental supply completed over the last 12 months, although that has not pushed vacancy rates higher. Increased completion of rental units were mostly offset by the removal of existing units from the market through demolitions, renovations and conversions to ownership. There has been a significant increase in the number of rental units under construction (40 per cent), as well as increasing demand for newer rental buildings with modern amenities.
“Rental housing is becoming an increasingly popular housing option for many people, including those new to the workforce,” said Jim Murphy, President and CEO, FRPO. “We have seen significant investments by apartment owners and property managers to existing rental buildings, making them more attractive to potential renters.”
The GTA’s red-hot condominium construction trend has slowed significantly, as completions declined by 37 percent from the previous year’s all-time high. The proportion of newly completed units that were offered for rent reached 50.3 per cent in 2016, which was slightly lower than the previous year. Low vacancy rates have encouraged existing condominium apartment owners to lease their properties. “CMHC estimates that 30 per cent of condominium units are investor owned, the majority of which are in the rental market,” said Murphy. “Condominiums have played an important role in the overall housing market by providing literally hundreds of thousands of units for rent since the early 1990s.”
Demographics appear to be a main factor. Younger people are staying in the family home longer, and this is a relatively small group. Baby Boomers are beginning to sell their homes, and younger families are moving out of rental properties to purchase these homes. Baby Boomers are also choosing seniors’ housing and condos over traditional rental housing options. This can be seen in the condo numbers as well. Condominium apartment vacancy rates are around the national average in Montreal at 4 per cent, and higher in Quebec City at 5 per cent. Condos have also played a factor in the higher purpose-built rental vacancy rates.
Quebec For many cities in Quebec, vacancy rates for purpose-built apartments are higher than the national average. Vacancy rates range from 3.9 per cent in Montreal and 4.9 per cent in Quebec City to 6.4 per cent in Sherbrooke and 7.0 per cent in Saguenay.
“In Quebec a large part of the rental stock is old and thus not very attractive,” said Hans Brouillette, directeur affaires publiques, Corporation des propriétaires immobiliers du Québec (CORPIQ), the largest apartment association in Quebec. “To a point, low rents can draw in tenants for the obsolete apartments, but that has a limit, and we have reached the floor.”
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“Many condos were built in recent years and, in many cases, they didn’t find buyers, so developers offer new and trendy condos at cheap rents to cover their operating costs and taxes, until they can be sold,” said Brouillette. “Purpose-built rental housing cannot match the amenities, so it’s hard to keep current tenants and attract new tenants. There are a lot of very old apartment buildings, and new condos are simply too attractive. As well, 35,000 social housing buildings have been built in recent years across Quebec.”
Vacancy rates for purpose-built rental properties vary across major centres in Atlantic Canada. On the low end are Charlottetown and Halifax at 1.7 and 2.6 per cent, respectively. On the high end are St. John’s and Saint John at 7.9 and 8.5 per cent, respectively. Turnover rates across Atlantic Canada are above the national average. Halifax has remained consistent with respect to vacancy rates over the last 10 years.
“Halifax has seen significant international migration, including many well-heeled foreign students, many skilled workers, who earn good wages, and the significant influx of Syrian refugees,” said Jeremy Jackson, President, Investment Property Owners Association of Nova Scotia. “Our economy and work force continues to grow. People continue to come to Halifax from other areas of Nova Scotia, and often rent. Numerous new rental apartments are coming on stream across the city this year.”
Higher vacancy rates can also be found in Atlantic Canada’s condominium apartment market. Halifax is at 3.8 per cent, but the condominium market is smaller than other Canadian centres. Numerous developers are ready to construct new buildings throughout Halifax, and operate them as rental buildings.
“I suspect the new rental construction has pushed the condo vacancy rate up, as renters can rent brand new apartments with condo-quality amenities, and professional management and services,” said Jackson. “That will almost certainly continue to be the case.”
Conclusion What do the numbers tell us? Across the country, vacancy rates are slightly higher on average this year, on the surface, where you own and manage rental property determines whether your building is full or empty. When you dig deeper, economic, demographic and social factors are driving these figures locally and regionally. Generally speaking, construction of purpose-built rental properties is on the rise, which is positive for both tenants and landlords. However, competition from the condominium rental market is affecting purpose-built rental vacancy rates, and could become a greater influence as more investors enter the rental market.
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