Multifamily properties continue to be an investment favourite worldwide, with Canada perhaps demonstrating the hyper version of what’s happening in markets elsewhere. Globally, recently released analysis from JLL theorizes there is “structural undersupply” in the United States despite 600,000 new units anticipated for completion this year. Meanwhile, residential rents jumped by an average of 8 per cent in Europe during the second quarter of 2024 and have surged above both the United Kingdom’s and European Union’s consumer price index since early last year.
In a recent online discussion of global market trends, JLL’s research director, Matthew McAuley, predicted the glut of new multifamily supply in the U.S. will be gobbled up over the next 18 months. Likewise, Cole Perry, a senior market analyst with Altus Group in the U.S., highlighted investors’ upbeat expectations earlier this summer during an online unveiling of results from his firm’s survey of market conditions and trends in both the U.S. and Canada.
“New construction starts have already halved in the market since peak levels in 2022 and demand is continuing to be above expectations. With the ongoing tailwinds from high house prices and the housing shortage, that’s going to keep national rents largely stable,” McAuley said.
American respondents to the Altus Q2 2024 survey picked multifamily to be one of the top three performers over the next 12 months in a field of 13 property types — falling behind industrial, but roughly on par with retail. As well, seniors housing and student housing were tapped in the fourth and fifth spots. Survey respondents’ enthusiasm for all housing types was more positive than in the first quarter of the year, up by 8 per cent for both multifamily and seniors housing and by 3 per cent for student housing.
“I think that probably speaks to a housing crisis that is slated to grip the U.S. and is probably already gripping Canada,” Perry mused.
Nevertheless, 61 per cent of American survey respondents deemed multifamily properties to be overpriced in the second quarter, with 33 per cent suggesting they were fairly priced and 6 per cent calling them underpriced. Looking north, 56 per cent of Canadian respondents said multifamily properties were overpriced, 41 per cent called them fairly priced and just 3 per cent saw them as a bargain.
“Contrasting Canada to the U.S., we don’t have the same supply coming on line in that category (multifamily), but we also haven’t seen the same price adjustment as the U.S. has experienced,” observed Robert Santilli, a director of valuation advisory with Altus Group in Canada.
Across all property sectors, JLL ranks Canada fourth among 15 nations it analyzes for the volume of direct commercial real estate investment during the second quarter. Even so, USD $7 billion worth of acquisitions this spring is a slight drop from sales volume in the fourth quarter of 2023. A chart-topping USD $76 billion in direct investment in the U.S. was also a modest slip from last fall’s activity, whereas the other two countries surpassing Canada — the U.K. at USD $10 billion and Germany at USD $7 billion — posted an uptick for the quarter.
Drilling down to multifamily, global investment dropped by 9 per cent in the first half of this year compared to the summer and fall of 2023, but it still led all other asset types with nearly USD $75 billion worth of direct investment. Investment levels also slipped in the industrial and office sectors — ranked second and third respectively for quarterly transaction volume — but were up modestly for retail (2 per cent) and significantly (21 per cent) for hotels and hospitality properties.
“With improvements in the debt market and liquidity, we are starting to see a notable uptick in strategic transactions in the markets, particularly for living strategies,” affirmed Sean Coughlan, JLL’s global head of capital markets research and strategy. “Two notable examples are the USD $10 billion privatization of multi-housing operator Apartment Income REIT in the U.S. by Blackstone, and Mapletree’s €1.2 billion acquisition of a student housing portfolio and platform across the U.K. and Germany.”
