Current economic factors in Calgary are making the residential rental market an attractive one for investors and landlords.
On January 30, Avenue Living Asset Management acquired 179 multi-family units in the city, with another 10 buildings expected to close over the next couple of months.
“We are actively growing our Calgary portfolio,” says Dave Smith, Avenue Living’s Chief Operating Officer.
Avenue Living first targeted the city with plans for aggressive expansion last fall. In September, 2019, the company owned 303 multi-family residential units in Calgary. By the end of the year, more acquisitions in Calgary helped to bring the company’s total assets under management to $1.5 billion.
“Over the last two years, pricing has become more attractive in Calgary, supported by strengthening fundamentals,” says Smith. “We have a long-term view on future job growth, which will in turn drive rent revenue.”
That viewpoint is supported by recent market numbers. A report by commercial real estate firm JLL (Jones Lang LaSalle) says Calgary saw just over $200 million in multi-family real estate sales in 2019 – 25 per cent higher than the running average for the past decade.
Positive signs for population, immigration and employment growth have provided a foundation for a strong residential rental market in the city, which continues to have a low vacancy rate with increasing rents.
“We’ve seen a bit of a pick-up compared to previous years. We’re seeing better absorptions and higher increases in rental rates. That’s a big shift from home ownership. People deciding not to own a home and renting instead. Calgary traditionally was an ownership market, but [now] we are seeing a lot more people rent and a high flight to quality,” says Sam Dean, Senior Vice President of JLL Capital Markets.
“We’re finally seeing some legacy assets, or assets that have been held privately for a number of years, coming to market. I think it has to do with the age of ownership or the structure of the ownership, where these families don’t want to pass down the asset and they decide to sell. We are seeing a few larger assets coming to market.”
The feeling from an investor’s perspective is that the multi-family residential rental market has bottomed out in Calgary and is now on the upward swing.
“If you compare the major centres in Canada, Calgary compared to a lot of them is still (largely in terms of our supply) under-serviced,” says Dean.
Eric Horvath, Senior Vice President/Partner/National Investment Services with Colliers International in Calgary, says that while the commercial real estate asset class remains challenged due to a struggling economy, it has performed well.
The market peaked in 2011 and 2014, with prices taking a step down from the highs of those years.
“But not notably, considering all of the obstacles that we have had to overcome. That’s probably a good sign that the market is somewhat stable in terms of pricing,” says Horvath.
“Having said all of that, interestingly enough, multi-family as an investment is performing very well. Our occupancy rates are up. Rents are sort of flat and, if anything, probably a little bit of upward pressure versus downward pressure that we experienced in 2015, 2016 and maybe even 2017. From an operational perspective, it’s a very appealing asset class.”
He said the buyers who are in the market are committed and that’s helping keep prices up.
“I think this is becoming a little bit of a demographic story as well, because setting aside the provincial economy, or the municipal economy here in Calgary, we’re also starting to see a shift in demographics. A lot of the property owners are older and they’re looking for people to sell their real estate to.”
According to the most recent Rental Market Survey by Canada Mortgage and Housing Corporation, the Calgary Census Metropolitan Area apartment vacancy rate was 3.9 per cent in October 2019, unchanged from October 2018. And average rents have gone up by just under two per cent.
The CMHC says the total rental universe in the Calgary region was 44,530 units in October. It peaked at 57,997 units in October 1994.
A strengthening labour market helped to support rental demand in the Calgary CMA. Throughout the first 10 months of 2019, there were 34,170 jobs added compared to the same period last year, an increase of 4.1 per cent. As well, the majority of new jobs added, over 80 per cent, were in full- time positions. Over the same time period, employment levels among the population aged 15 to 24 increased 8.2 per cent, which helped to lift rental demand, as this cohort is typically associated with renter households, explains the report.
“A recovering labour market in Calgary has contributed to increases in interprovincial migration, which has supported rental demand. Following two consecutive years of declines, net interprovincial migration was positive in 2018 as more individuals moved to the area than departed for another province. As well, quarterly migration flows for Alberta show that this trend continued in the second quarter of 2019, with the level of in-migrants increasing compared to the same quarter in 2018,” adds the report.
Heather Bowyer, Senior Analyst, Economics, for the CMHC, says the positive employment and population growth are driving rental demand in the Calgary region.
“Looking into homeownership, we are seeing some buyer’s market conditions there. There may be some people who are just holding off moving into the homeownership market and choosing to rent longer until the economy stabilizes a little bit more in Calgary,” she says.
Avenue Living expects to close on another 96 units in Calgary today.