Earlier this year, Morguard released its 2016 Canadian Economic Outlook and Market Fundamentals Report, in which it predicted a fifth consecutive year of positive results for Canada’s commercial property sector, and specifically purpose-built rental.
With Q1 coming to a close, we checked in with Keith Reading, Morguard’s Director of Research, for some advance insights into market conditions. Reading says he is feeling optimistic that 2016 will bring favourable results for the apartment sector.
“There is a lot of capital from mostly private sources, pension funds, institutions and some public entities chasing a limited number of assets for sale,” Reading notes. “The low Canadian dollar is a draw for foreign capital as their purchasing power has increased.”
During periods of economic weakness, such as the current climate, Reading explains that investors look to place capital in stable and secure investment vehicles. Over various periods of economic softness the sector has exhibited significant levels of resilience with regard to capital retention and income growth.
“When the economy is weak, people put off purchasing to some degree, which bolsters rental demand,” he says. “The consistently healthy migration to Canada from other countries also has stabilized demand for rental accommodation.”
Notable Q1 apartment transactions:
- Akelius acquired a 415-unit portfolio in Montreal for $120.5 million (or $290,361 per unit)
- Skyline REIT acquired 5400 Clover Road in Edmonton for $46.1 million (or $221,679 per unit)
- An undisclosed buyer bought a 327-unit Quebec City portfolio from OMERS for $22.2 million (or 67,890 per unit)
- Timbercreek Asset Management acquired 300 Regina Street North in Waterloo, Ontario, for $84 million (or $203,883 per unit)
- Minto acquired 205, 207 Morningside Avenue in Toronto for $27.5 million (or $128,505 per unit)
2016 apartment market predictions:
According to the 2016 Canadian Economic Outlook and Market Fundamentals Report, investors will continue to achieve attractive portfolio returns, finishing the year close to (or slightly below) 2015.
Performance will be essentially income-driven, with property values holding at 2015 levels. There will be modest erosion of property values in specific asset categories in Alberta, as the ongoing oil crisis results in rental market softness through at least the first half of 2016.
Investment fundamentals will be largely positive, against a backdrop of elevated global economic and financial risk. A range of investment groups will continue to scour the Canadian market for opportunity. However, supply will fall short of healthy demand supported by low interest rates and relatively stable property market investment performance.
Despite weakness in regions that are dependent on the oil and broader energy sector, the 2016 outlook for Canada’s commercial property investment market is largely positive. You can read the complete report online: http://www.morguard.com/news-knowledge/research
Notable Q1 transaction: 160 Chapel Street, Ottawa
In February, 2016, Morguard North American Residential REIT purchased 160 Chapel in Ottawa for $67 million. The 21-storey, 370-suite property was the first Canadian acquisition for the Trust since its IPO in 2012.
The property features furnished and unfurnished suites with a mix of bachelors and one- and two-bedroom floor plans. It has a prime location in an existing multi-suite residential neighbourhood with stable occupancy. There are four commercial units located on the ground floor comprising of 7,010 square feet of retail.
The acquisition was financed by cash and a mortgage in the principal amount of $38.6 million for a term of ten years, bearing interest at 2.88 per cent per annum.
Erin Ruddy is the editor of Canadian Apartment Magazine