A huge growth in international students and a booming tech sector have combined to make Montreal’s multiresidential market extremely favourable to investors, participants at the Quebec Apartment Investment Conference were told.
Speaking in Montreal on Feb. 13, Vincent Shirley, director of innovation and growth strategies at Altus Group in Montreal, noted there has been a 37 per cent increase in the number of foreign students to Quebec in the last five years, representing an average annual increase of about 3,000 foreign students per year. In 2018, there were 45,086 foreign students in the province.
“Our quality of life, our values (and) our safety” will continue to attract a high number of students to Montreal, said James Palladino, managing director of RBC Capital Markets Real Estate Group in Montreal.
The international standing of Canada and Montreal has never been as high among foreign students, especially in comparison to that of the U.S., he said.
Student market key driver in Montreal
The student market is very important for Montreal, particularly in the downtown area, Palladino said. Students allow apartment owners to have stability, as students will remain for three or four years.
Along with medium-term stability, students also “allow owners to always have a new market” and to obtain market-value rents when they leave.
Marc Hétu, vice-president of CBRE Limited in Montreal, said the growth of tech talent in Montreal is helping to fuel a steady increase in rents in the city.
The average salary of tech jobs in Montreal is $75,634, about 37 per cent higher than for other types of jobs.
Patrice Ménard, president of PMML, a multiresidential real estate and mortgage agency in Montreal, said high-tech jobs are providing opportunities for landlords. Many tech jobs are being taken by Europeans who are used to paying high rents.
Shirley said the fundamentals of Montreal are strong and interest rates are low, two factors that have buoyed the city’s rental market.
He said 53 per cent of housing starts in 2019 were for rental units in the Montreal area, compared with only 11 per cent in 2012.
Apartment unit starts rise dramatically
There were 13,000 rental unit starts last year in the city, compared with only about 3,000 annually between 2010 and 2013.
In addition, there is a historically low tenant turnover rate in Montreal, Hétu said. Last year, the turnover rate for tenants in Montreal was 15.7 per cent – below the Canadian average, Shirley said.
Palladino said because of ever-increasing land prices, there are fewer and fewer developments of 40 to 50 units being built downtown. Such small-scale developments are no longer economically feasible.
Higher land costs in the core are creating opportunities for development in the suburbs, where “we’ll see an acceleration of rental development.” He also predicted “thousands of homes will take form in the coming years” in Montreal’s East End.
Ménard said Canadian institutional and private buyers are concentrating their search for potential apartment building purchases on three Canadian cities – Montreal, Toronto and Vancouver.
Major rent increases on way
In Montreal, in particular, “there is anticipated to be an enormous increase in rents.” As a result, even with cap rates of around 3.5 to 4 per cent, institutional investors believe they can make solid returns, he said.
According to CBRE’s Q4 2019 Canadian Cap Rates & Investment Insights report, cap rates for class-A high-rise multifamily buildings in Montreal range from 3.75 to 4.25 per cent. Montreal real estate dynamics underline strong rental growth for the foreseeable future, the report says.
Shirley noted there are six buyers per seller of Montreal apartment buildings and outlined some of the major purchases in the city last year.
Minto Apartment REIT (MI-UN-T) was a leading buyer. First, Minto purchased the 1,004-unit Rockhill for $268 million. The six buildings in the Côte-des-Neiges Road development near Mount Royal average 777 square feet per suite, with an average monthly rent of $1,352.
That was followed by the REIT’s purchase of Le 4300 at 4300 de Maisonneuve Blvd. W. in Westmount and Haddon Hall on Sherbrooke Street in downtown Montreal, with a combined total of 528 units. The purchase price of $281.1 million represented a cap rate of 3.7 per cent on forecast year-one net operating income.
Palladino said developers will continue to eye Montreal for ambitious new rental projects and that they face an ideal situation: As they are not subject to rent control, they can charge market rents.