Oh, what a difference a year makes.
Twelve months ago at the Ottawa Real Estate Forum, panelists discussing Ottawa’s multiresidential market focused on a continued supply imbalance. Participants expressed the need for the “pressure relief valve” of adding more rental stock – any kind of rental stock – to the market.
At this year’s forum on Oct. 14-15, the COVID-19 pandemic cast a long shadow.
Are we seeing an emerging trend of people abandoning the downtown for the ‘burbs or rural areas? Will work-from-home become the de facto standard for many organizations – including the federal government – so people are less inclined to live in the same community as their place of work?
And so on.
But the sentiment during this year’s multires panel remained generally upbeat. This optimism was anchored by what lies beneath the economic fundamentals.
“The elasticity of human nature will be very strong,” said moderator Aik Aliferis, senior managing director, investments at Institutional Property Advisors (a division of Marcus & Millichap).
The multiresidential fundamentals
New housing development, after all, is a long-term play not so easily derailed by a crisis of a year or two. While people may come to adapt a more hybrid working model where they spend only a couple of days a week in the workplace, the traditional office is far from dead.
The flipside of that is the need to rethink residential design to better accommodate a home office – which creates a new opportunity for forward-looking developers and landlords.
Nor can we overlook the persistent desire of young people, still saving for that first home purchase and in need of rental options, to live and work close to the action of a vibrant urban core.
All of which is to say Ottawa continues to have a need for new rental stock – to provide more affordable options, to renew an aging inventory, to accommodate the resurgence of immigration, and the return of out-of-town post-secondary students once the pandemic passes.
“The right time to develop”
At Timbercreek Asset Management, the view is projects currently underway will come to market at an ideal time after the pandemic. Co-founder and CEO Ugo Bizzarri and his team take the rather contrarian view that a “downcycle is the right time to develop.”
“We are more bullish about development today than we were maybe six or seven months ago,” Bizzarri said. “You can’t have a short-term view – you have to have a long-term view and we believe that Canada is poised to do well over the long term . . . multifamily is one of the asset classes that will do well.”
The issues Timbercreek faces today, he added, are the same ones the industry as a whole already faced. Most notable is a chronic shortage of skilled people in the construction trades.
Phil Fraser, president and CEO of Killam Apartment REIT (KMP-UN-T), believes “larger urban centres will remain the dominant places to live across Canada.” Any exodus from the urban core that may be occurring and attributable to the pandemic will be a short-term phenomenon.
Killam is backing that assertion with shovels in the ground. The REIT has one 211-unit project just completed in Ottawa, and two others of comparable size on deck, in addition to its existing local portfolio.
“Some vacancy creeping in”
Neil Malhotra, CFO of Claridge Homes, said landlords just need to work harder to turn over vacancies, particularly downtown, than they did a year ago. The requirement to woo prospective tenants with promotions and incentives is back on the table.
“There is some vacancy creeping into the marketplace, but from a long-term perspective, we have confidence in the market,” he said.
The biggest challenge, Malhotra acknowledged, is being proactive with existing projects and making adjustments in response to shifts in the market – such as reshaping what would have been a select service hotel property into multiresidential.
Then there is the affordable housing side of the equation as pricing pressures remain problematic for many residents with modest household incomes.
The need for affordability
“You can’t really build affordable housing, you build housing and try to make it affordable,” said Cliff Youdale, chief development officer of Ottawa Community Housing.
That’s because materials and labour costs are generally the same as for any other project. The trick is to work with partners and lenders on lower land acquisition and financing costs.
The near-term impact of the pandemic doesn’t change the fact Ottawa has an aging inventory of affordable housing stock and a growing waiting list of applicants – 10,000 and counting.
It’s critical, Youdale said, to remain on track with the plan to bring to market 300-500 new units a year over 10 years.
“We are just getting back to where we were in the ’80s,” Youdale said. “There’s a lot of catch-up because of a long hiatus. We need to do this and we are going to make it happen.”
Public sector or private, the collective focus remains on that long-term need for more housing in Ottawa.
That includes more affordable options made possible by working with public partners – CMHC and federal programs such as The Affordable Housing Innovation Fund.
“We don’t have a crystal ball, we don’t have an exact science, but after a crisis, things always resort back to the need,” Bizzarri said.
“This is not the first crisis the world has seen and it won’t be the last, but people have a strong resilience to rebuild and I believe in that.”