Multifamily Report
Canadian Multifamily Market: Strong 2023 Performance, Uncertain Future
Which direction will the apartment market go following its robust results in 2023? Supply-and-demand dynamics point to an encore in 2024, but larger economic forces could put the brakes on what has been a cornerstone of the country’s economic growth.
According to the Yardi® Canadian multifamily report, the sector thrived in 2023, highlighted by the following national averages:
• A 6.5% year-over-year increase in in-place rents, elevating to an all-time high of $1,480.
• An all-time low vacancy rate of 2.7%.
• A 12.2% lift in new lease-over-lease rents in Q4.
• Double-digit new lease rent growth in nine of the 12 CMAs and five of seven provinces tracked by Yardi. With immigration scheduled to continue full bore in coming years, demand for apartments will remain vigorous.
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Potential clouds on the horizon
Several factors point to a possible cooling in the multifamily market. These include:
• A slowing national economy, with GDP expansion holding around 1% in 2023 and a similar level predicted for this year.
• Decelerating job creation, evidenced by only 10% of new jobs added across the country in 2023 occurring in the fourth quarter.
• Rising unemployment, which while remaining low historically, has seen an uptick of 80 basis points from last spring to Q4 2023.
• High mortgage rates, which while boosting rental demand, also price many out of the homeownership market.
Despite these concerns, the Yardi report offers a somewhat optimistic outlook. It notes that Canada’s multifamily market maintained its strong performance through the end of 2023 and more of the same is expected for 2024.
Construction trails growth
A comparison with the United States offers valuable insights. While both countries observed similar demand surges and rent increases in 2021 and 2022, Canada continued to experience rising rents in 2023, unlike the U.S. where rents stabilized. This disparity is primarily attributed to the significantly higher volume of new housing units delivered in the U.S., exceeding 1 million over the past two years.
Despite Canada’s faster population increase compared to the U.S., housing construction falls short. This, combined with the supply chain challenges and worker shortages affecting both countries, has resulted in several consequences, as highlighted by the Yardi report. This includes rapid rent growth, households migrating across CMAs seeking affordability, and renters unable to escape substantial housing cost increases.
Potential signs of rent stabilization
The Q4 2023 national average year-over-year new rent increase of 12.2% marks the first decrease since Q1 2021, potentially signaling a peak in rent prices. The national average vacancy rate of 2.7% highlights the persistent imbalance between strong rental demand and weak supply growth. This is further underscored by the lowest vacancy rates concentrated in Nova Scotia (1.5%), Manitoba (1.8%), and Ontario (2.3%), indicating an acute housing shortage in those specific regions.
Signs of a severe housing shortage come not only from low vacancy/turnover rates but also Yardi’s digital prospect data. Nationally, apartment owners had 17 digital prospects per 100 units in Q4 2023, the lowest number since Yardi began tracking the data and down 15% from 20 in Q4 2022. Further, digital prospect conversion was up from 4.7% to 5.4% in the same period comparison. This reflects diminishing choices in market and relatively stronger lead-to-lease rates.
Fundamentals produce ‘a best bet’
Going forward, there appears to be a consensus around the need to build more housing in Canada, with officials stepping up with stimulus measures such as the federal government’s $4 billion Housing Accelerator Fund and province-level tax exemptions for housing developers.
Although mortgage rates, the rising price of materials and economic uncertainty pose challenges, multifamily still represents a stable force in Canadian society. According to industry experts, this segment possesses solid fundamentals, making it a favourable choice for the upcoming year. Factors contributing to this positive outlook include robust population growth, an ongoing supply shortage, and the relative affordability of rental units and condos compared to single-family homes.
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Definitions
Lease-Over-Lease Rent Growth (New Leases):Percentage change in monthly rent between a new lease and the previous lease for the same unit.
In-Place Rent Per Unit: Monthly rent per unit for all leases, including new lease rents, renewal lease rents and existing leases.
Vacancy Percent: Property vacancy percentage based on average number of units vacant in the month.
Turnover %: Tenant move-outs as a percent of total units.
CMA: Census Metropolitan Area.
Digital Prospect Conversion %: Percentage of prospects who first contacted a property through digital sources, who became residents.
Digital Prospects Per 100 Units Per Month: Count of prospects who first contacted a property through digital sources, normalized for a 100-unit property. Digital sources include the Property’s Website, ILS, Online Search, Classified Sites, Social Media Sites, SEM, and Ratings Sites. Excludes brick and mortar sources, such as referrals and walk-ins.
The data in the report encompasses 5,100 properties that represent more than 464,000 private rental units across Canada.
For more insight into the Canadian multifamily market, view the full report at Yardi.com/CNDMultifamilyReport
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