Multi-suite residential rental market investment at record levels

Technology-based businesses and shared workspace companies remained at the forefront of Canada's office space demand: report

Mario ToneguzziCanadian commercial investment property experienced strong sales in the second quarter of this year, with record-high levels in the multi-suite residential sector, according to a new report.

The Canadian Economic Outlook and Market Fundamentals Report by Morguard Corp. said investors looked in the multi-suite residential rental market to increase their exposure to sectors that had performed relatively well during times of economic weakness. Investment in the sector surpassed $2 billion.

“Investor confidence in property sectors with strong historical performance, apartments in particular, has been demonstrated recently with sales activity remaining at the record high despite growing economic uncertainty,” said Keith Reading, director of research at Morguard, in a news release. 

“Investors are looking for safer investments as they become more cautious and question where Canada and the United States are situated in their respective economic cycles.”

The overall health of the Canadian office market was sustained through to the end of the second quarter, the report said. Technology-based businesses and shared workspace companies remained at the forefront of Canada’s office space demand cycle and the challenge of finding available properties sharpened the focus on fewer high-quality assets available.

After single-digit vacancy levels in the retail sector for more than 15 years, that sector has posted double-digit vacancy levels since the end of the third quarter of 2018. That has prompted investors to exercise increased scrutiny when looking at potential acquisitions, added the company.

“As the late stages of the Canadian commercial investment property cycle continue throughout 2019, investors will try to balance capitalizing on late-cycle growth and increasing positions in assets that offer greater downside protection,” said Reading.

“The late stages of the Canadian commercial investment property cycle will continue to unfold through to the end of 2019. Generally, investors will look to strike a balance between capitalizing on late-cycle growth and increasing their positions in assets that offer greater downside protection.

“For some, this will mean continuing to source asset classes with histories of low volatility. These will likely include multi-suite residential rental properties and various debt strategies. These late-cycle strategies will continue to support a relatively healthy transaction closing volume and aggressive bidding on available properties. The late stages of the cycle will see yields continue to stabilize, as the cap rate compression trend continues to slowly fade.

“The continued low interest rate environment will drive investment activity. Prime markets will generate strong interest, as will properties at or near transportation hubs. In general, there will be plenty of low-cost debt and equity capital available to over the near term, during the late stages of the Canadian commercial property investment cycle,” added Morguard’s report.

Mario Toneguzzi is a Troy Media business reporter based in Calgary.

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