Photo: James Bombales
Being a landlord or real estate investor in Canada is paying off.
At least it appears to be for the owners of purpose-built rental buildings.
According to a new report from CBRE, rents for units in these buildings increased 4.4 percent nationally last year, led by a 7.1-percent increase in Vancouver. Toronto was next with an annual rate of rental growth of 5 percent.
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These increases have led to big returns for multi-family residential real estate investors, CBRE suggests. Investors achieved annualized returns of 9.8 percent as of this year’s first quarter.
That, in turn, has attracted more and more investors looking to capitalize on strong demand for rentals that is pushing rents higher. Investment in multi-family properties soared to a record total of $8.3 billion last year, according to CBRE.
“The multifamily segment’s ability to generate consistent cash flows with low levels of volatility has always made apartment buildings an enticing option for investors, but the combined strength of tenant demand, rental growth, and investor interest is unprecedented,” says Paul Morassutti, CBRE Canada’s vice chairman, in a statement.
“Demand drivers, including a growing population and high home ownership costs, coupled with a lack of meaningful rental supply, are fueling income growth at a pace that we have never seen in many Canadian markets,” Morassutti continues.
CBRE notes that incomes haven’t kept up with home prices, keeping more would-be homebuyers in the rental market. Hefty price tags for developable land in Toronto and Vancouver have made it harder for builders to make the numbers work on purpose-built rental projects. Instead, they opt for more profitable condo ventures, putting a lid on the supply of purpose-built rentals.
“Traditionally viewed as a stable, defensive asset class, the multifamily sector is now benefiting from market fundamentals that are arguably as good as they have ever been, and we don’t expect them to change in a material way, recession or not,” CBRE’s Morassutti explains.
“That’s great news for investors; for renters, not so much, as they will continue to experience higher rents and lower vacancy as supply remains constrained,” he adds.