Investors’ robust interest in rental apartment buildings has elevated British Columbia’s multi-family investment market during the first half of 2011.
These are some of the key trends noted in Avison Young’s Summer/Fall 2011 British Columbia Multi-Family Investment Report.
“Vendors grew increasingly aggressive on pricing as deal and dollar volumes surged and both listed and off-market product changed hands more frequently,” real estate company Avison Young reported.
During the first half of 2011, total multi-family sales amounted to $238 million – a 125 percent increase over the second half of 2010 ($106 million) and a 51 percent jump over first-half 2010 ($158 million). Avison Young tracks multi-family investment deals valued at more than $5 million.
“Rental apartment buildings remain one of the most sought-after commercial real estate categories in BC due to three factors: low investment risk, attractive financing terms backed by Canada Mortgage and Housing Corporation (CMHC), and the opportunity for tenant turnover to increase rental rates and improve yields,” said Avison Young Principal Rob Greer.
With bond rates near historic lows and five-year financing rates backed by CMHC remaining available at less than 3 percent, multi-family investment can generate more desirable equity and cash-leveraged returns when compared with equity markets.
Ongoing capitalization rate compression has resulted in some quality Vancouver multi-family product achieving cap rates below 4 percent, according to the semi-annual report.
“Institutional as well as overseas buyers continue to look to BC for multi-residential investment product,” added Greer.
“But quality buildings of sufficient scale remain elusive for institutional investors.”
Higher yield multi-family investments in the suburbs are drawing buyers out of Vancouver as the supply of large institutional-grade apartment buildings available for sale within city limits shrinks amid increasing competition.
With about one-third of multi-family transactions occurring in Vancouver (7), investors increasingly look eastward and into the suburbs (including the Fraser Valley) with buildings trading in New Westminster (3), Coquitlam (2), Burnaby (2), the North Shore (2), Surrey (1), Richmond (1), Abbotsford (1) and Chilliwack (1).
The report also contains a Q&A with British Columbia Apartment Owners & Managers Association CEO Marg Gordon on the allowable residential rent increases for 2012 and other issues involving multi-family owners and investors in BC.