With the arrival of 2015, it’s fair to say that the real estate market is facing a heightened degree of uncertainty. From interest-rate changes and volatile commodity prices, to demographic shifts and advancements in technology, there are many factors affecting investment outcomes. But, when it comes to the multi-residential sector, one factor in particular could pose the biggest risk and opportunity: millennials.
“The millennial is transient, but focused on live/work/play opportunities in downtown areas,” stated Mark E. Rose, Chairman and CEO, Avison Young, in his opening message. “The urbanization of real estate is a real trend with major development occurring to meet the needs of millennials and empty nesters moving to downtown cores and/or close to transit. This trend is manifesting in small cities as well as global gateway centres.”
In the Greater Toronto Area, the ongoing theme of abundant capital chasing a limited supply of quality product will continue to prevail in 2015. Low cap rates for quality assets persist, and while private investors and pension funds have filled some of the void left by REITs, some buyers are undertaking development to augment their growth strategies.
The city of Calgary boasts one of the most productive and best-paid workforces in the country. Average weekly earnings increased 5.1 per cent year-over-year to August 2014, and the population is expected to reach more than 1.3 million by 2018, largely due to immigration. With oil prices having dropped in response to OPEC’s decision in late 2014 to maintain output levels, the market is expected to experience some challenges in the next 12 to 24 months.
According to the report, a noteworthy trend in Calgary is the number of new purpose-built, multi-residential rental projects under construction in the inner city. Serving as a litmus test for this trend will be the AURA project by Intergulf-Cidex, the former Astoria project now under AIMCo ownership, and the former Kai Tower (Oslo) project being developed by Statesman. Several additional projects are being planned by GWL on behalf of bcIMC, Embassy Bosa and Qualex-Landmark, among others.
In Edmonton, economic conditions remained favourable throughout most of 2014, yielding steady GDP growth of 4.9 per cent for the capital region. Investment properties continue to be hot commodities with cap rates significantly exceeding 10-year bond yields. This situation follows a long-term trend of falling cap rates, which have decreased to 5 per cent for residential—a trend that will likely continue through 2015 (despite Alberta’s resource-reliant economy and falling oil prices, which have made investors slightly more risk-averse).
Over in Atlantic Canada, the Halifax market is expected to remain stable largely due to the high concentrations of government, military, private-sector regional headquarters and educational institutions in the metropolitan area. Developers’ confidence in the city has spurred construction of commercial and multi-residential projects, which have led to an overabundance of available space. Vacancy levels have risen as a result of this construction boom, and a slowdown in development is expected as the necessary absorption takes place.
In Ottawa, the market has felt the sting from the Canadian government’s continuing downsizing of the public service in advance of the federal election scheduled for 2015. That said, sectors of the market continue to perform while others remain stuck in neutral. Capital market activity remained stable through 2014 with cap rates relatively unchanged across all asset classes. Multi-residential transactions led the way as cap rates in the sector remained at historically low numbers. Given the large amount of activity in recent years, owners’ pricing expectations have increased and yields have fallen.
For the full report, visit http://www.avisonyoung.com
