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B.C. apartment investment market is breaking records

Total sales volume for apartment buildings throughout Greater Vancouver and Greater Victoria in t...

IMAGE: Lance Coulson is executive vice president at CBRE in Vancouver. (Courtesy CBRE)

Lance Coulson is executive vice-president of CBRE’s National Apartment Group for British Columbia. (Courtesy CBRE)

Total sales volume for apartment buildings throughout Greater Vancouver and Greater Victoria in the first six months of this year has already far surpassed the yearly average and shows no signs of slowing.

“We’ve always been around from $1.2 to $1.4 billion and, halfway through this year, we’re almost at $2 billion,” Lance Coulson, executive vice-president of CBRE’s National Apartment Group for British Columbia, told RENX. “We could potentially hit $3 billion by the time we end the year.”

Coulson was one of the CBRE executives who compiled a mid-year report which shows there were 97 transactions comprising 4,412 units and valued at $1.92 billion through June. That compares to 84 deals for $1.12 billion for all of 2020 and 98 transactions for $1.2 billion throughout 2019.

There are a number of factors contributing to the current market activity, according to the report.

Government-imposed rent freezes and escalating operating costs are negatively affecting net revenue figures. Tougher parameters for tenant relocation are also inhibiting landlords’ abilities to invest in and improve their properties, many of which were originally built in the 1960s and ’70s and require maintenance and capital upgrades.

These challenges, combined with potential changes from the federal government to the capital gains tax structure, are all contributing to more apartment owners making the decision to sell their properties.

Meanwhile, investors are attracted to the stable returns provided by multifamily properties and are able to leverage historically low interest rates.

The fear that tenants wouldn’t pay rent during the pandemic was largely unfounded, as Coulson noted collections have remained around 97 per cent across Canada.

Growing interest from institutional investors

Many transactions are setting new benchmarks for pricing and yields, as scale is driving values.

Coulson said institutional investors are as active as he’s ever seen during his 24 years working in the market and they’re looking long-term. Many investors who didn’t have multifamily in their portfolios are looking to add it and those which already owned apartments are expanding their portfolios.

CBRE brokered a deal for what it calls the “Vancouver Legacy Apartment Portfolio,” in which a local private family sold 15 properties with 614 units for $292.5 million to InterRent REIT and Crestpoint Real Estate Investments Ltd. in January.

Coulson said that deal helped propel the market to the heights it has reached this year.

Other major transactions included: 151 units at 1155 Beach Ave. in Vancouver’s West End selling for $95 million; 83 units at 5815 Yew St. in Kerrisdale selling for $50 million; and 135 units at 14000 Riverport Way in Richmond selling for $45.47 million.

Apartment vacancy rates and rents

Higher supply and lower demand combined to increase the vacancy rate in the Vancouver census metropolitan area (CMA) to 2.6 per cent in the first half of this year from a pre-pandemic norm of around one per cent.

The increased supply came both from the completions of new buildings and many condo owners who were renting on a short-term basis putting their units back into the long-term market.

It’s expected vacancy rates will again begin to decrease with the return of immigration, university and college student populations, and demand for short-term vacation rentals as borders reopen.

Entry-level home prices continue to remain high relative to local incomes, resulting in many potential homebuyers facing financial barriers and needing to rent for longer while they build up a down payment, which contributes to rental demand.

The average monthly rent in the Vancouver CMA was $1,508 through the first six months of 2021. Coulson said some landlords dropped rents last year, but they’re coming back up.

Even though the provincial government has imposed a freeze on rent increases, average market rents increased by two per cent and the average asking rent for vacant units is 21.4 per cent higher than the average rent paid for occupied units.

New apartment construction

There were 2,388 new rental units completed in 2020, the highest annual increase since 1990, and Coulson said several more are on the books to be built or are under construction.

“For the larger private buyers, and even more so for the institutions, they’re looking for scale. Our average building in Vancouver is about 20 to 25 units and most of these institutions want 100-plus. The only way to get that is if you buy portfolios, which are hard to come by.

“But now developers are building 75- to 150-unit new apartments, which are going to attract buyers that are looking for scale. You also get operational and management efficiencies with these larger assets.

“So depending on where the pricing is, I think it could be pretty active in the last quarter and going into 2022 with those types of properties as more get finished.”

Victoria and other Vancouver Island markets

The Vancouver Island apartment market has also been very active through the first half of 2021. There were 23 building sales in Greater Victoria with a total value of $376.7 million and six sales in Nanaimo with a value of $55.5 million.

There has also been multifamily demand in Parksville, Campbell River and other parts of Vancouver Island.

“With people working from home and knowing they don’t have to live in Vancouver or Victoria, they’re moving outward,” said Coulson.

Greater Victoria deals have pushed above $300,000 per door and Nanaimo has pushed over $200,000 per door, both of which are higher than last year.

Both the Greater Victoria and Vancouver Island apartment markets offer solid fundamentals and, in most instances, higher yields compared to the capitalization rates in the Lower Mainland. That’s attractive to yield-driven private and institutional investors.

Coulson said private and institutional money has also been active and looking for apartments in other B.C. markets, including the Okanagan region, Penticton, Kamloops and Kelowna.

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