Calgary has experienced an explosion of interest in the purpose-built rental market with 100 buildings launched over the last five years. Those buildings comprise 12,814 units across seven sub-markets, including Airdrie and Cochrane just outside the urban area.
The boom has raised concerns about potential overbuilding and whether Calgary can absorb all that new product.
Kendall Brown, manager, rental data (Alberta/Ontario) for market research and data advisory firm Zonda Urban (formerly Urban Analytics) told viewers at the virtual Calgary Real Estate Forum the majority of the completed developments are already stabilized – buildings that have achieved over 85 per cent occupancy.
Another 13 of the projects are actively leasing.
“Looking at the average vacancy for all projects in Calgary, the vacancy decreased by two per cent when compared to the previous quarter and by 10 per cent when compared to the third quarter of 2020,” Brown said during a panel discussion on the multiresidential market.
“The vacancy for all projects is higher at 8.2 per cent, compared to the stabilized 4.1 per cent. This is due to the new products that have launched during the last couple of quarters.
“During the second quarter of the year (2021), nine new products were launched adding 1,241 new units to the market. These new projects have an average vacancy of 30 per cent, which is bringing up that average from the 4.1 to the 8.2 per cent.”
Almost 100 more developments on the way
Brown said 96 other projects have been approved by the City of Calgary, with 37 currently under construction. Of these, 20 are expected to hit the market over the next couple of years.
Those 96 projects total an additional 21,977 units to the city’s purpose-built rental market. Of those under construction, an additional 7,576 units will be added to the market.
“With the way Calgary is pacing and where COVID’s at, it’s very difficult to get a sense of how real some of the things that we’re seeing are,” said Alkarim Devani, co-founder of Calgary’s RNDSQR.
“So, it’s really hard to put a finger on the pulse, to understand whether or not this trend of rental will be more consistent and if homeownership continues to get delayed and we see people more interested in rental housing.
“If you were to ask our company, we do think that’s something we’ll see into the future. I think there’s less of a priority on our target audience in terms of ownership. So I’m quite confident that we will see absorption.
“I think the condo market in Calgary will continue to be tough to operate in because of the sheer volume and ownership, and so I think the rental market will continue to thrive.”
Can Calgary absorb the new apartments?
Mike Bucci, vice-president of development at Bucci Developments, said the Vancouver-based company is currently leasing twin 14-storey rental towers called Dominion containing 161 apartments.
“Can Calgary absorb this? I think, yeah, it definitely has potential to absorb all those units. Looking at the Dominion example, we opened June 1. I think we’re just over 100 leases written at over $3 a foot with no incentives. That’s well beyond the pro forma targets we set back in 2019,” said Bucci.
“I think there’s plenty of good examples in the Calgary market of how you can be successful in rental. Going forward, though, I’m a little bit nervous about how some of these projects are going to compete.”
He said potential renters will have plenty of options, including other housing segments and markets.
“The new projects coming along, they’re competing with townhouses in the suburbs, they’re competing against the existing rental world, they’re also competing a little bit on the national stage.
“These people that are coming from Toronto, Vancouver and Montreal have an expectation of what rental living should be and some of the stuff that’s coming to market I’m nervous it’s a little bit generic, box of air in the sky.
“I think they will lease up, probably by using some inducements. But, I think they’re really going to bleed out on the absorption, turnover and vacancy statistics.”
Bucci said higher-performing rental projects in Calgary today have a full-on, built-in customer service element.
Amenities, building features key to lease up
Brown said another key for developers is having an element in their buildings that differentiates them from competitors. For example, Park Central has a rooftop pool – the only building in Calgary with this particular amenity.
“So having one or two key differences between your building and the other buildings will make or break the success of the lease up,” she said.
According to Zonda Urban, demand for downtown apartments is currently driving the market, with vacancy decreasing to almost half of what it was in Q2 2021. Young professionals and students are making up this demand as they move back into the inner submarkets in anticipation of the re-opening of the city post-pandemic.
One of the City of Calgary’s initiatives is a financial incentive program for developers to convert empty downtown office space into residential use. So far, the city has received 13 applications for a total of about 600,000 square feet.
“It’s quite clear that more housing in our downtown core proper is a positive thing,” Devani said. “I think our core was built with a very different central business district mindset based around oil and gas.
“I think if we can bring housing into our core and start to think about how people use those spaces, and the city is willing to make investments into those spaces to draw more people to spend time there, that’s a really positive thing.”