One of Winnipeg’s top apartment operators believe chronic low rents in the city will rise, despite provincial rent controls and reluctant tenants.
Richard Morantz is the president, CEO and owner of Globe General Agencies, a Winnipeg-based real estate investment and management company started by his grandfather in 1927. He is also past president of the Professional Property Managers Association of Manitoba.
Morantz says strong immigration, low unemployment and a new balance between tenants and available units will bring rewards in the coming years.
“We definitely want to expand our portfolio,” he says.
Globe is arguably the biggest non-government player in the Winnipeg market, managing nearly 4600 of the city’s 53,000 apartment units. Since 1980, Morantz has expanded Globe into five Canadian cities and two US markets, holding 6000 apartment units worth over $800-million.
With that international perspective, Morantz is clear about the Winnipeg apartment rental situation.
“Rents are not high enough,” he says, noting similar Globe assets in Saskatoon and Edmonton command higher rents.
Canada Mortgage and Housing (CMHC) confirms that Winnipeg has the lowest average rent on the prairies at $875/month for a two-bedroom unit, compared to Calgary ($1084), Edmonton ($1034), Regina ($932) and Saskatoon ($936).
The national average is $883, according to the CMHC October 2011 Rental Market Report.
That Dog Won’t Hunt
Many blame Manitoba’s rent control laws for low rental rates.
In place since the 1980s, rent control capped increases over the last three years to 1%, 1.5% and 1%. Since 2001, the Manitoba government has never set the guideline increase higher than 2.5%.
Yet each year the average rent in Winnipeg rises in excess of the provincial control, climbing 4.6% in 2011 and more than 40% in the previous decade.
Globe has managed a comparable 4-5% increase per year by making capital improvements to its holdings and qualifying for exemption from rent control laws. Successful applicants must demonstrate the guideline increase will not cover the cost increases incurred in the upgrading to their units.
Morantz says provincial controls may have slowed rent hikes but the value of apartment stock has been boosted by owners upgrading their holdings to qualify for easement – a win-win for owners and tenants.
Low Vacancies and Declining Choices
Usually, scarcity increases demand which increases price. Not so in the Winnipeg apartment market.
During the last ten years, Winnipeg’s vacancy level has never risen higher than 2% and is consistently below the national average. Today, Winnipeg stands at 1.1% compared to the Canadian average of 2.2%.
Dianne Humbeault, CMHC Senior Market Analyst for the Prairies, also points out that the overall number of rentable apartments in Winnipeg continues to decline, as demolition of old stock and condo conversions out-pace new apartment construction.
“We need stock to meet the population growth that we are seeing,” says Humbeault.
Currently, Manitoba is enjoying an influx of new residents and high employment due in large part to a dedicated effort by the government to attract skilled, new residents through the Manitoba Provincial Nominee Program. Approximately 8,000 immigrants settled in Manitoba last year and the same is expected in 2012.
Humbeault says rental construction has rebounded in the last two years but these additions represent a small percentage of the Winnipeg market and will not have any great impact on the vacancy rate.
She predicts Winnipeg’s vacancy rate will continue to be abnormally tight.
Morantz thinks otherwise, expecting city-wide vacancies to hit 6% by 2015.
He sees a similar situation now to the late 1980s when a flurry of new apartments were built that sat empty in the early 1990s after the economy slowed.
Pay It Forward
Without shovels in the ground, Globe has still been the most active player in the Winnipeg market over the past 12 months, acquiring two properties for $31-million.
Paying between $110,000 and $120,000 per suite, Morantz is spending another $5-million on renovations, driving his price per unit to around $150,000.
Morantz expects a 30% increase in rents from one property after redecorating suites and the lobby, following his plan of keeping residents in place during capital improvements then staging rent increases over several years.
“People will pay for value,” he says, noting an increasing number of the city’s apartments are commanding above-average prices despite Winnipeg’s longstanding reputation as a wholesale city where everyone wants a bargain.
He says Globe and several other developers renovated buildings in a prime Winnipeg location which now rent for as much as $1300 for a two bedroom apartment – proving that Winnipeggers will pay rates comparable to other Canadian cities.
A Bright Tomorrow
Winnipeg is a tight market, with more than 50% of available units held by five agencies.
Morantz predicts new investment opportunities are coming. He forecasts both vacancy rates and interest rates will increase, pushing smaller owners to sell; especially ones who have held out from making substantial refurbishments to qualify for rent control exemption.
“Many of those buildings should be sold,” he says, so new owners can inject new life into the city’s dwindling apartment stock.
“Winnipeg is a great market, and I’m excited about the future.”