Investment market dynamics stayed on trend in the third quarter of 2019, meaning that multifamily cap rates continued to compress. CBRE pegs the national average for Class A high-rise buildings at 3.82 per cent. Only the niche category of high street retail —investment properties that traded in just two markets, Toronto and Vancouver — registered a lower average cap at 3.81 per cent.
“Despite ongoing volatility, mixed signals from financial markets, geopolitical shifts and daily headlines that seem more surreal than real, the commercial real estate market in Canada remains in ‘steady as she goes’ mode,” says Paul Morassutti, vice chairman, valuation and advisory services, at CBRE. “Overall cap rates have remained largely unchanged with the exception of the multifamily and industrial sectors where structural shifts continue to drive rental growth.”
Margins are slightly roomier for Class B high-rise and low-rise multifamily properties, but even the highest average cap, for Class B low-rise, sits at 4.88 per cent. Looking across the 13 national markets CBRE monitors, rates in Vancouver, Victoria, Toronto and Ottawa consistently slip below the national averages.
Vancouver once again offers the tightest yields, in the range of 2.5 to 3 per cent for Class A high-rise and 2.75 to 3.25 per cent for Class A low-rise. Average rates also slipped below 3 per cent in Toronto, in the range 2.75 to 3.75 per cent for both high-rise and low-rise Class A properties. Meanwhile, Ottawa was the only market that registered upward movement, with average caps for Class A high-rise nudging to the 3.5 to 4 per cent range.
Rates were generally higher in prairie cities, although neither Saskatoon nor Winnipeg recorded Class A high-rise trades during the quarter. Calgary and Edmonton posted matching averages in the 4 to 4.5 per cent range for Class A high-rise, while yields were slightly tighter in Calgary than Edmonton for other multifamily property types.
Looking east, cap rates compressed for three of four property types, and remained stable for Class A low-rise. “Multifamily fundamentals are solid within Halifax as the city has experienced rapid population growth and continued low vacancy coupled with rising rents,” says Bob Mussett, senior vice president with CBRE’s national investment team.
“Despite record pricing metrics, interest from investors has remained elevated due to exceptionally strong property fundamentals across most Canadian geographies. The competitive bidding activity has driven yields to compress further,” reports David Montressor, executive vice president of CBRE’s national apartment group.
Class B low-rise appears to present the most wiggle room with cap rates above or in the range of 5 per cent in nine of the 13 markets. They are highest in London-Windsor, at 6 to 7.25 per cent, then Saskatoon at 6 to 6.5 per cent.