A vacancy rate below 1 per cent, steadily rising rents, compressing cap rates for existing properties and ample access to low-cost financing underpin Victoria’s purpose-built rental housing boom. Colliers International’s newly released overview of the Victoria multifamily market lists 13 projects encompassing nearly 1,150 units slated for the city’s downtown. Of these, five are now under construction, one has received approval to proceed and seven are at the proposal stage.
Analysts don’t expect to see much change in the vacancy rate that CMHC pegged at 0.5 per cent in the fall of 2016 even as new supply, in both purpose-built rental and condominium stock, augments the overall inventory. In-migration to Victoria has brought new tenants, while rapidly increasing housing prices have discouraged sitting tenants from making the move to ownership. Landlords are also renovating some units on turnover, thus taking them out of the market temporarily.
Across the Greater Victoria area, the average monthly rent for one-bedroom units is pegged at $912 as of June 2017, up from $890 one year earlier. Downtown, market rents are hitting a range upwards of $2.30 per square foot, considered necessary to make the case for new development. Alternatively, would-be investors have few options to buy.
“Investor demand for purpose-built rental apartment properties in the Greater Victoria marketplace continues to be sustained at levels that far outpace the supply of available product,” the Colliers report states.
The first half of 2017 saw 20 sizable transactions — i.e. worth at least $1-million —amounting to $108 million in sales value. This was a pickup in investment activity from the first six months of 2016, when major deals totalled $69 million. The average suite price was $214,488, up from $181,96 last year, as the average cap rate dropped to 3.83 per cent. Although long-time landlords are generally hesitant to absorb the inevitable tax hit that comes with sales, current market dynamics have helped some resolve to act.
“Many owners who now find themselves in an aging demographic, are viewing a disposition of their buildings as a more palatable way in which to come to terms with estate driven initiatives,” the report hypothesizes. “Additionally, for owners who choose to vend into this current frothy market, currently populated by capable investors competing for a meagre supply of quality product, timely dispositions are the order of the day.”
Only mid-rise and low-rise buildings were in play, however, with the largest property at 76 units. Just four properties boasted 60 or more suites, while the next largest contained 45.
New purposed-built projects cover more of a range of sizes with three in the 200-unit range and four with fewer than 20 units. Meanwhile, 28 downtown condominium projects are generally larger, comprising 2,400 units in total. These are also expected to factor into the rental supply.