Rental housing makes a comeback
Last year saw a surge in construction of rental units, according to real estate brokerage CBRE. It reports that there were 24,000 units under construction, up 52 per cent from a year earlier. Typically, new rental starts in Canada’s cities are at double the five-year average and may be higher becaues many builders register as condos when they are actually rentals. Derek Lobo, CEO of brokerage Rock Advisers, told the Globe and Mail: “Canada is at the early stages of a new apartment construction renaissance.” The market is being boosted by insurance companies and pension funds choosing the rental market as a safer place for their funds. As well as lower interest rates, the resurgence in rental buildings has been driven by demand, with builders finding they can often make as much from selling a rental building to an investor as they can selling condos. As a result of the changing landscape there has been an increase in the number of condo developments ending up as rental buildings.
Rental construction has traditionally been a riskier proposition for developers, since they can’t rely on presales to help finance construction and don’t know how much demand there will be from renters until after they’ve finished building. Rentals typically take 20 to 30 years to pay for themselves, compared with two or three years for a condo project.
But with value of rental properties skyrocketing, many developers are finding they can make nearly as much money from selling a rental building to a single large investor than from selling hundreds of condo units to individual buyers.
Fears that the condo market might be hitting its peak have also pushed more builders to consider rentals.
“To some extent the interest is being driven by condominium developers who have seen sales slow, and they see apartments as an alternative way to feed the machine they’ve built,” apartment broker Mr. Lobo said.
Already this year two condo projects in Toronto have converted to rentals after being snapped up by institutional buyers.
“The rental market is really hot right now. It’s sizzling,” said Joe Cordiano of condo developer Cityzen Development Group, which received an unsolicited offer from an institutional investor to convert a downtown Toronto condo project to rental. The company is now considering other rental projects after receiving other offers from investors, he said.
Even Toronto’s “condo king” Brad Lamb has turned to the rental market, recently selling a $90-million condo project called the Bronson in Ottawa to an investor. When Mr. Lamb unveiled the project in 2013, Ottawa’s condo market was booming, but it has cooled off amid a glut of new construction.