Commercial: Multifamily – Market Outlook

Apartment buildings have historically seen little change, with minimal new construction since the 1970s and stable rents supported by CMHC financing. However, increased housing demand, driven by population growth and immigration, has made homeownership unaffordable for many Canadians.

In addition, shortfalls in construction and rising interest rates, which delay the ability of Canadians to jump into the market or move up, are leading to record-high rental rates and making housing affordability a national priority.

The multifamily market has evolved from its previous simplicity, with operators now facing a rapidly changing landscape. Despite the continued availability of low-cost CMHC financing, multifamily operators must navigate complex variables such as energy efficiency, insurance costs, affordability, and alternative housing options.

Key considerations for multifamily operators include CMHC financing products, securitization markets, energy efficiency, insurance costs, affordability, alternative housing options like micro units and rental condominiums, public sentiment on housing financialization, “renovictions,” rent control, construction costs, and government incentives for development.

Multifamily Residential Housing: Solid Fundamentals

• Despite challenges such as delays or cancellations in condo and rental projects, multifamily residential housing remains robust, akin to industrial real estate, due tosolid fundamentals.
• Vacancy rates in this sector are anticipated to decrease, leading to an upward trajectory for rental rates.
• Despite expected rental rate increases, low levels of unit turnover pose challenges for realizing gains.
• Within the rental segment, there is optimism regarding specific opportunities despite current cost and financing challenges. The recent federal government announcement of GST relief for new construction projects has sparked further industry interest.
• Niche assets within the multifamily segment, such as student and senior housing, are gaining traction. Trends like the increasing number of international students in Canada and the aging demographics of the country are driving discussions around these niche opportunities.

Sources:

This article reflects our research of reports and evaluations by CBRE Canada, PWC report, Globe & Mail, Colliers Canada, Avison Young, and JLL Canada.