Investors should continue to favour seniors housing assets during these days of national and international macroeconomic and political uncertainty, says one Canadian wealth management and capital markets firm.
Citing rising global interest rates, concerns with Canada’s housing market, rising household debt and other factors, Echelon Wealth Partners said investors should continue to pursue multi-family housing.
“One of the best examples of such a sector is the senior living space,” the Toronto-based firm said in a recent sector note.
The current global political climate could also lead to a longer period of uncertainty, Echelon wrote in its note.
“We think the Canadian senior living sector is well-positioned to benefit from investors’ attention over both short- and long-term horizons, as the sector continues to be exposed to strong fundamentals and should not be significantly affected by rising interest rates, all else being equal.”
Canadian population getting old, quickly
Demographics are clearly a key to that investment strategy.
Canada’s population of residents 65 and older increased by more than 70 per cent over the past three decades and now totals more than six million, or 17 per cent of the population, Echelon wrote.
By 2037, the Canadian population aged 65 and older could represent 10.4 million and 24 per cent of the Canadian population. By then, the Canadian population that’s 80 or older could reach 3.5 million.
Many of those people will be interested in living in seniors-specific housing.
Echelon has 11 branches across Canada employing more than 100 investment advisors and portfolio managers. The firm started in 2010 as Euro Pacific Canada. Since then, it acquired Dundee Goodman Private Wealth in early 2016, re-branded as Echelon and tripled in size.
High household debt a concern
The bulk of the risk in the Canadian market stems from high household debt, said Frederic Blondeau, Echelon’s head of real estate research.
“(Canadian) household debt is one of the highest among developed economies,” he said. “The market is always right, but we look at the conditions, or the situation of Canadian households, (and) they’re a little bit stressed because of the debt.”
He told RENX Echelon has encouraged investment in multi-family and seniors living assets for at least six years.
“Multi-family has been our top sector, or our favourite sector, since 2012,” he said. “The other sectors we’ve been favouring and still do favour are senior living and industrial.”
He said seniors living, especially in Ontario and B.C., has been driven by the aging population as well as a shortage of supply. “B.C. should remain extremely strong because everybody wants to retire there. Supply is still not significant enough to meet the demands.
“Not only do we think the fundamentals of the sector will remain strong . . . but also, we think the sector will remain vibrant because . . . the governmental commitment will remain extremely strong,” he continued. “They have to.”
Apartments, seniors housing in “buy” column
In its 2019 commercial and multi-family investment recommendations, Echelon put moderate income apartments at the top of its “buy” list at 56.8 per cent buy, 31.1 per cent hold and 12.2 per cent sell. It placed seniors housing second on its list at 52.9 per cent buy, 37.1 per cent hold and 10 per cent sell.
At the bottom of the buy list, it placed retail power centres at six per cent buy, 22 per cent hold and 72 per cent sell. Second from the bottom Echelon placed outlet centres at 8.2 per cent buy, 44.9 per cent hold and 46.9 per cent sell.
Echelon remains cautious about the Canadian office and retail investment sectors, Blondeau said.
“We’ve always been worried about the various sector changes on the retail front. I don’t think it’s over yet,” he said. “The only aspect of retail that I would be focusing on — if you have to be exposed to retail — would be . . . the everyday needs-type of retail. Other than that, I think retail continues to go through a tremendous change.”
He said while office demand in urban Vancouver and Toronto remains robust, rents have not kept pace with the demand reducing the investment value. Meanwhile, millions of square feet of new office stock is on the way for downtown Vancouver and Toronto.