GTA home sales

Canada’s institutional investors eye apartments

Thursday, February 11, 2016

Purpose-built rental housing gained noticeable favour with Canada’s institutional investors last year. Recently released 2015 results of the REALpac/IPD Canada Property Index reveal a 67 per cent increase in net investment in the sector compared to 2014, and an even more significant 234 per cent jump in expenditure on new development.

Residential properties account for about 13 per cent of the index — which comprises 42 portfolios with 2,440 individual assets cumulatively valued at nearly CAD $136 billion — but they made a disproportionate contribution to the total return of 8 per cent, while office and industrial markets slipped in some parts of the country. Nationwide, residential properties recorded 3.4 per cent capital growth versus 1.8 per cent for office and no gains for industrial.

“Apartment values have continued to rise, given stellar demand from a range of investors and ongoing increases in rents in most markets, excluding Alberta,” says Keith Reading, director of research with Morguard. “The rise in investment activity is not surprising. If there were more investment opportunities in Canada, then the 2015 figure would have been even higher.”

Index participants invested $925.1 million in the sector last year, with $161.1 million of that going into new development. That’s up from a net investment of $554.1 million in 2014, of which just $47.5 million was in new development.

“More and more investors are looking to develop rental apartments, given their inability to source assets to buy,” Reading notes.

Net investment in the apartment sector surpassed the $707 million that institutional investors allocated to industrial properties last year, but trailed $1.013 billion in office investment. However, the gap was considerably narrower than in 2014, when net investment in office properties topped $1.8 billion. (Retail properties drew the largest share of investment in 2015, equating to more than $2.08 billion.)

The repercussions of prolonged low oil and gas prices underlie sharp dips in the capital value of Calgary and Edmonton’s office and industrial properties, yet, even there, apartments gain some traction. “In a down economic cycle, a portion of renters stay put instead of deciding to purchase a home, due to their concerns related to job security,” Reading says.

“The sector provides stable and attractive performance, and has long been in high demand with both private and public investment groups,” he adds.

Looking back to better times, past annual index results also show evidence of standout performance — such as 2012, when residential properties delivered a total return of 16.2 per cent and capital growth in excess of 10 per cent.

Leave a Reply

Your email address will not be published. Required fields are marked *