Canadian Multi-Family Sector Sets Record Returns For Investors

The multi-family residential sector is the strongest it’s ever been in Canada with record transaction activity in the second quarter, sparked by strong economic fundamentals.

Buoyed by those healthy economic indicators, Calgary-based Avenue Living Asset Management has been one of the investment leaders in Western Canada as it continues to grow its portfolio in the region.

Morguard Corporation recently released a report saying investors in the multi-family residential rental market looked to increase their exposure to sectors that had performed relatively well during times of economic weakness. Investment in the sector surpassed the $2 billion mark in the quarter.

Another report by CBRE said Canada’s multi-family market is the most robust it has ever been, with apartment buildings practically full from coast to coast. Rental rates are currently at or near 10-year highs in almost every market.

Jason Jogia, Chief Investment Officer for Avenue Living, which owns and operates 8,800 multi-family rental residences across many Western Canadian markets, said he is not surprised at all by what the two reports are saying.

“There’s definitely a feeling that there’s a continued move to multi-family investment. Avenue Living has purchased over 1800 units in the last 12 months in the specific niche of workforce housing. As we underwrite acquisition opportunties, we do see a lot of investment interest in all our markets. Much of this interest is also directed beyond the workforce housing niche and elevated in the primary markets.

“What’s really driving the investment interest is a flight to safety. Multi-family has always been viewed as a kind of counter-cyclical investment – an investment that will always hold the opportunities to refresh against inflation or any pressures on capital markets. People are seeing that the truly stabilized asset class has quite a bit of resilience relative to the current economic volatility that we’re facing.”

Avenue Living has aggressively built a portfolio of 8,800 residential rental units across Western Canada in just 13 years. The company’s journey began in 2006 with the purchase of 24 rental units in Brooks, Alberta for $3 million.

Avenue Living, which has a diversified portfolio across 17 markets in the Prairies, will continue to provide homes for the workforce housing population well into the future. The company expects to grow to more than 10,000 residential units across Western Canada by the end of this year.

Jogia said there is continued demand for rental housing across Western Canada, adding that housing legislation still makes it very hard for some people to qualify for mortgages to buy a home. There’s also a great influx of people coming to the region from other countries.

“People need housing solutions. As a result, we’re seeing high demand. If you look at August for Avenue Living, for example, it was our busiest month in the history of the organization in terms of leasing volume,” explained Jogia.

Avenue Living has strategically aligned its multi-family rental assets to cater to a niche market – called workforce housing – that is growing across Western Canada. Workforce Housing is geared to a city’s “essential workers,” who are the backbone of every city, and make up close to 40 per cent of the Canadian population.

The company builds out its portfolio through the Avenue Living Real Estate Core Trust, which seeks out properties with high occupancy rates and strong in-place cash flow, and the Avenue Living Real Estate Opportunity Trust, which acquires properties that present an opportunity to reposition and drive cash flow through a capital investment and leasing program.

The Morguard commercial real estate report said the multi-family residential rental sector was again the strongest contributor to the record transaction activity during the second quarter.

“Investor confidence in property sectors with strong historical performance, apartments in particular, has been demonstrated recently with sales activity remaining at the record high despite growing economic uncertainty,” said Keith Reading, Director of Research at Morguard, in a news release. “Investors are looking for safer investments as they become more cautious and question where Canada and the United States are situated in their respective economic cycles.”

The CBRE report said growing population, rising home ownership costs and lack of rental supply are driving the sector’s record-setting returns and investment volumes.

It said the national average multi-family vacancy rate ended 2018 at 2.4 per cent, below the 10-year average of 2.6 per cent and average rents for purpose-built rental units have grown by 4.4 per cent annually at the national level. Total annualized returns for the Canadian multi-family sector were 9.8 per cent as of the first quarter and those hefty returns have enticed investors, with multi-family investment volume reaching record levels for four consecutive years, including an all-time high of $8.3 billion in 2018.

“The multi-family 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,” said CBRE Canada Vice Chairman Paul Morassutti in a news release. “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.

“Traditionally viewed as a stable, defensive asset class, the multi-family 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. That’s great news for investors.”