HIGH DEMAND FOR TOWNS DURING COVID
REMI Magazine - Canadian Apartment
Demand for affordable, ground‐oriented housing options has been robust since the start of the pandemic. Altus Group’s latest report shows that townhouses have captured a larger share of the new home sector and demand is up or stable in many cities across Canada.
As the markets deal with the second wave of COVID‐19, low interest rates, increased home buying intentions and shifts to flexible work, a few factors are expected to keep townhouse demand resilient in 2021.
Demand has been strongest in the suburban regions of the major metropolitan areas where prices for townhouse units are often lower than two‐bedroom condo apartments in more central areas.
Many millennials delayed forming families and are in search of affordably priced options with room to grow, in a family friendly built form. Given the single‐family price affordability challenges in the major markets, and economic uncertainty resulting from the pandemic, demand for affordable townhouses is anticipated to continue to grow.
Since fall 2019, intentions to buy have risen among current renters across the country, except in Manitoba and Saskatchewan. Demand has been strongest in the suburban regions of the major metropolitan areas where prices for townhouse units are often lower than two‐bedroom condo apartments in more central areas. New townhouse buyers are said to be a diverse group, but the built form is becoming increasingly popular with younger consumers with or without children.
All this being said, the supply of townhouse land remains scarce, the report states. As a key component of the ‘missing middle,’ this land is often prohibitively expensive in urban areas.
Vancouver saw townhouse volumes double 2019 levels, with strong sales occurring at affordably priced townhouse developments in Surrey, Langley and Coquitlam.
In Calgary and Edmonton, sales were down slightly in 2020, but have been comparatively robust given the weak economy in Alberta.
The Greater Toronto Area has seen a sharp increase in demand for all single-family built forms, but townhouse activity has seen the biggest improvement over 2019. Outside the GTA in the broader GGH, townhouse volumes are the highest recorded since tracking began in 2014.
BOND RATES CONTINUE TO SLIDE
A 100 basis point slide in the 10-year Canada bond rate over the course of the COVID-19 pandemic contributes to real estate’s continuing allure for institutional investors. Speaking at last week’s REALPAC/Ryerson Virtual Research Symposium, Colin Johnston, president, research, advisory and valuation, with Altus Group, tracked a widening spread between 10-year bond yields and presumed real estate returns that measured 561 basis points in favour of real estate at the end of September.
“This is what pension funds and the life (insurance) cos look at,” he said. “They look at the spread between 10-year Canada bonds and internal rates. Right now, that does provide a potential buffer to values going forward.”
He submits that’s reflected in steady or even shrinking cap rates for multi-residential and industrial properties over the first three quarters of the year. Johnston’s presentation also revealed a general alignment between MSCI data for the Canada Property Index and results of Altus’ quarterly investment trends survey, based on responses from 150 Canadian commercial real estate executives. MSCI charts strong national returns in both the industrial and multi-residential sectors — averaging 12.4 per cent and 8.6 per cent respectively — while survey respondents tag those properties as their preferred investments.
Together, industrial and multi-residential properties account for nearly 42 per cent of Canada-wide investment sales value during the first eight months of 2020. Across all asset classes, year-over-year sales values dropped by 17 per cent and transaction volume declined by 11 per cent compared to January-August 2019. That was most notable in the office sector, which recorded $7 billion in sales during the first eight months of 2019, but was down to about $3 billion in sales for the comparable period of 2020. In contrast, industrial sales volume increased in 2020 and multi-residential registered the least amount of slippage among the other asset classes.
INFLATION MOVING UP
Year over year, the Consumer Price Index (CPI) rose at a faster pace in November (+1.0%) than in October (+0.7%), with shelter prices (+1.9%) contributing the most to the all-items increase. Excluding gasoline, the CPI rose 1.3% in November, up from a 1.0% increase in October.
Although consumer confidence remains below pre-pandemic levels, increased consumer spending on household durable goods supported higher prices for furniture (+2.8%) and household appliances (+2.9%), which remain above pre-pandemic levels. As the household savings rate declined compared with the early months of the pandemic, physical distancing rules encouraging Canadians to stay home may have prompted increased spending on big-ticket items for the home.
Rent prices rose 1.5% in the 12 months to November, up from a 1.0% increase in October. While year-over-year growth in rent prices remained below pre-pandemic levels, November marked the fifth month-over-month increase in six months, with the lone decrease occurring in July.
Gasoline prices fell 11.9% year over year in November, with domestic and international demand remaining low. The tightening of public health restrictions in response to the second wave of COVID-19 continued to weigh on low global demand for gasoline.
RECENT APARTMENT SALES
75 Berkindale Drive – Hamilton – SOLD $10,500,000 / $283,785 per suite / 3.75% Cap Rate
This sale consists of 37 rental townhouse units condo titled in a larger 46 unit complex. The project was built in the 1970's and consists of two and three bedroom units with full basements. Some are street towns and others are maisonette styles. Many of the units had been renovated over the past five years and all were fully occupied at the time of sale. This property was marketed and sold by The Apartment Group with multiple offers. The Buyer was a condo investment syndicator.
165 La Rose Avenue – Toronto – SOLD $83,600,000 / $396,200 per suite / 2.81% Cap Rate
This property was held in ownership by a long term holder from the US. The building was in excellent condition and well maintained and stood on over 3.72 acres of land near Eglinton and Royal York. The asset has 211 (all two bedrooms) suites which are above average in size and rents far below market at the time of sale. It also had an outdoor pool and tennis courts and other amenities. There was some potential to intensify on the site. The asset was fully marketed and sold to Realstarr.
240 Markland Drive – Etobiocke – SOLD $51,000,000 / $451,325 per suite / 2.20% Cap Rate
This sale consists of 113 rental apartment suites owned by a private investor located is central Etobicoke. The building contains 27 one bedrooms, 58 two bedrooms and 28 three bedrooms. This is a classic 1960's concrete building with brick exterior and flat roof and balconies and 10 storeis. The structure were considered to be in average condition for its age. The site was over 3.3 acres and there are two potential development areas on the lands. This property was fully marketed and sold to Carterra Management Inc.. This is asset represents investments and development.
141 Erskine Avenue – Toronto – SOLD $64,080,000 / $395,555 per suite / 2.44% Cap Rate
This is a 1.29 acre site improved with a 13 storey rental apartment building containing a total of 162 suites. It is a concrete structure with elevators, underground parking, balconies and flat roof. There are 50 bachelor suites, 95 one bedrooms, 11 two bedrooms and 6 penthouse suites. Located in prime Yonge and Eglinton the buildings were owned by a long term investor and were good condition for there age with rents below market. The asset was fully marketed and was purchased by Q Residential.
THE APARTMENT GROUP
Together the team has completed over 1,000 transactions and has sold over $5 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings then our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner