Investing in Metro Vancouver's rental buildings

A new study suggests Metro Vancouver apartment rental buildings are increasingly a hot item for investors despite rising vacancy rates.

“Demand for multi-family residential rental properties remains insatiable for a number of fundamental reasons,” Michael Keenan, managing director of Avison Young, Metro Vancouver, said Monday in reference to his commercial real estate services company’s Summer/Fall 2011 B.C. Multi-Family Investment Report.

“Apartment buildings are a low-risk investment, offer secure income streams and are the most easily financed commercial real estate commodity of all, thanks to rates guaranteed by the Canada Mortgage and Housing Corporation.”

Keenan also said rental apartment buildings continue to rise in value as investors seek safe havens for their capital.

Other factors influencing demand, the report said, include low investment risk and the opportunity for tenant turnover to increase rental rates and improve yields.

According to the semi-annual report, which tracked investment deals valued at more than $5 million, in the first half of 2011 total multi-family rental building sales amounted to $238 million – a 125% increase over the second half of 2010 ($106 million) and a 51% jump over the first half of 2010 ($158 million).

The report said institutional and overseas buyers look to B.C. for opportunities, but that 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.

Seven of the large institutional-grade transactions were in Vancouver, three in New Westminster, two each in Coquitlam, Burnaby, the North Shore and Surrey, and one each in Richmond, Abbotsford and Chilliwack.

The three largest acquisitions in the first half of 2011 were the $44-million purchase of Ocean Residences in Richmond, the $24.5-million purchase of Bonsor Apartments in Burnaby, and the $23.75-million purchase of Marine Garden Village in Vancouver.

The report noted that the movement of renters to home ownership continued into 2011, and that apartment buildings faced increased competition from the secondary rental market, including suites in homes and investor-owned condos available for rent.

Asked why rising vacancy rates — up to 2.8% in April from 2.2% in April 2011 — aren’t hindering investment, Keenan said that apartment vacancy has always been low in Metro Vancouver and “the slight upward spike currently being experienced is temporary and not worthy of great concern.”

Keenan also said that “vacancies can usually be easily filled at a low cost, unlike virtually any other type of commercial real estate. When a new tenant occupies a suite, the rent can be set at what the market will bear. Rent controls simply limit how much of an increase the landlord can charge on an annual basis.”

Source: Brian Morton, Vancouver Sun