Canada’s two priciest rental housing markets rank moderately when mixed in with the largest urban centres in the United States. Newly released data for the second quarter of 2022 from Lee & Associates Commercial Real Estate Services pegs average market rent in Vancouver at USD $1,145 (CAD $1,468) and in Toronto at USD $1,113 (CAD $1,427), well below the U.S. index average of USD $1,640 (CAD $2,115).
Vancouver and Toronto recorded the lowest vacancy and cap rates among 33 surveyed markets, of which 31 are located in the U.S.. In fact, the Canada-wide vacancy rate, cited at 1.9 per cent, is 10 basis points (bps) lower than the tightest U.S. market, Santa Barbara, California, while the Canadian average multifamily cap rate of 3.6 per cent is just a notch higher the U.S. low of 3.5 per cent in San Francisco. Yet, market dynamics appear similar on both sides of the border.
“The steadily rising cost of home buying has been keeping people in the rental market longer. Mortgage rates are up, and existing home prices reached a record median $407,600 (CAD $526,000) in May. Due to supply-chain disruptions and lengthening construction timelines, deliveries of new apartments have been flat,” the Lee & Associates report states. “With rent growth surging, investment capital has been pouring into the multifamily sector. Multifamily sales activity topped the four major real estate categories, and investors see rent growth remaining above the long-term average and the shortage of available housing not changing in the short term.”
Lee & Associates analysts report 9.2 per cent rent growth across the U.S. during the first half of this year — a pace that has nevertheless slackened from the 11.2 per cent growth of 2021. San Francisco, with a vacancy rate of 7.4 per cent, commands the highest average market rent at USD $3,092 (CAD $3,989). New York City, Boston, Orange County, California and East Bay, California round out the top five with average market rents ranging from USD $2,980 (CAD $3,844) in New York to USD $2,426 (CAD $3,130) in East Bay.
Rents are roughly comparable to or lower than in Toronto and Vancouver in six of the surveyed U.S. cities: Spartanburg, South Carolina; Indianapolis, Indiana; Saint Louis, Missouri; Cincinnati, Ohio; Omaha, Nebraska; and Cleveland, Ohio, which bottoms out the rankings with average market rent of USD $1,066 (CAD $1,375).
Per-unit sales values soar in California
San Francisco also boasts the highest average sales price per unit for Q2 at USD $669,238 (CAD $863,317). That compares to Vancouver’s average price per unit of USD $322,027 (CAD $412,856) at a cap rate of a 2.4 per cent, and Toronto’s USD $207,575 (CAD $266,122) unit average at a cap rate of 3.5 per cent.
Four of the five markets recording the highest average per unit sales values are located in California — including Orange County, San Diego and East Bay along with San Francisco. Boston is the exception, with an average per unit sales value of $492,525 (CAD $635,357) at a 4.2 per cent cap rate.
Ventura, California, New York and Seattle also surpass the USD $400,000 (CAD $516,000) mark for average per unit sales value. Vancouver is ranked 14th, sandwiched between Miami, with average an per unit sales value of USD $345,245 (CAD $445,366), and Naples, Florida, which posted an average per unit sales value of USD $313,245 (CAD $404,086). Vancouver surpasses and Toronto lags the U.S. index average of USD $257,272 (CAD $331,880).
At the bargain end of the scale, the lowest average per unit sales values were found in Cleveland, Vineland, New Jersey, Detroit, Omaha and Cincinnati. Cleveland offered up the best bargain with an average per unit sales value of USD $82,695 (CAD $106,676) at a 7.5 per cent cap rate.
Atlanta saw the most sales volume in a 12-month period with nearly USD $20.9 billion (CAD $26.9 billion) in deals. The next four markets are Phoenix, New York, Los Angeles and Washington, D.C.. Collectively, the top five markets account for USD $78.5 billion (CAD $101 billion) in multifamily sales since the second quarter of 2021, representing slightly more than 26 per cent of the cited U.S. index sales — USD $298.5 billion (CAD $385 billion) — for the 12 month period.
Expanding purpose-built rental housing inventories
Currently, there are nearly 853,000 units of purpose-built rental housing under construction across the U.S.. With approximately 47,700 purpose-built units underway, Canada is adding the equivalent of 5.6 per cent of that new inventory in a country with a population roughly 11.6 per cent of the size of the U.S.
However, Toronto ranks seventh among the 33 surveyed markets with 25,185 units of purpose-built rental units under construction. New York tops the list with nearly 57,000 units under construction, followed by Dallas-Fort Worth, Washington, D.C., Phoenix, Atlanta and Los Angeles.
Together, Toronto and Vancouver account for 75 per cent of current Canadian construction. New construction in Vancouver is largely on par with activity in Chicago, at 10,606 and 10,815 units respectively. However, Vancouver’s in-progress complement is equivalent to 7.7 per cent of its existing inventory of purpose-built rental housing, while Chicago’s represents a more modest 2 per cent of existing stock. When viewed in relation to the status quo, Vancouver is also expanding at a greater pace than Toronto, where new construction amounts to 6.6 per cent of existing inventory.
Nashville, Miami and Orlando stand out as rapidly expanding U.S. markets with the equivalent of 12 to 14 per cent of their current purpose-built rental inventories now under construction. In sheer numbers that ranges from 20,348 units in Nashville (14 per cent of existing inventory) to 23,803 units in Orlando (12.4 per cent of existing inventory).
