Avison Young releases Q1 2009 Multi-Family Investment Report: Dollar
volume up over Q4 2008 but well below Q1 2008 levels as bid-ask gap
remains a factor
VANCOUVER, April 21 /CNW/ - BC's multi-family investment sector is
picking up steam after hitting what appears to have been the bottom of the
market for this sector in the fourth quarter of 2008. Primary reasons for the
increased activity include the attractive performance aspects of this asset
class, and historically low financing rates. However, sales activity and
pricing remain well below the levels from a year ago due to the bid-ask gap
that still exists between vendors' and buyers' expectations.
These are some of the findings in Avison Young's Q1 2009 BC Multi-Family
Investment Report, released today.
"BC's multi-family properties remain top-performing commercial assets
during the economic downturn, with investors continuing to be attracted to the
asset's consistent, low-risk returns. This was a key reason for the increase
in sales during the first quarter of 2009 versus the fourth quarter of 2008,"
comments Avison Young principal, Rob Greer. "Inexpensive financing rates are
currently driving the market. Due in part to the availability of attractive
financing through Canada Mortgage and Housing Corp. (CHMC), multi-family
assets continued to trade during the first quarter of 2009 with several deals
firm and pending completion." (CMHC-insured mortgages are currently available
in the 3.5% range compared to the high 4% to low 5% range 12 months ago.)
However, while sales volumes exceed fourth quarter 2008 levels, they are
still well below the volumes experienced over the past five years, and
activity may not rebound to previous levels until 2010, according to Avison
Young Multi-Family Investment Advisor, Michael Brodie.
"The slower activity can be primarily attributed to the new price
expectations of purchasers and the unwillingness of some vendors to meet
them," explains Brodie, who says average prices are down approximately 10% to
20% from the peak in mid-2008. "There continues to be a high number of
listings (112 currently) as some vendors are still looking to achieve
yesterday's prices in today's environment. Most purchasers are now looking for
a higher return on potential investments and cap rates have stabilized at 100
to 150 basis points above the market peak. We do not foresee a return to
previous cap rate levels in the near future."
According to Avison Young's survey, the number of multi-family investment
transactions during the first quarter of 2009 totaled 17 - down 35% from the
26 deals recorded in the first quarter of 2008 but up 143% from the seven
deals closed in the fourth quarter of 2008. The total value of transactions in
the first quarter of 2009 amounted to $59,320.530 - down 36% from the
$92,102,720 recorded in the first quarter of 2008 but double the dollar volume
registered in the last quarter of 2008.
During the first quarter of 2009, the buyer profile predominantly
consisted of local private investors wanting to take advantage of higher cap
rates and historically low interest rates. Greer explains: "Recent buyers have
primarily been high net worth individual investors wanting to purchase for the
first time in three to four years, and who are attracted to the now positive
spread between cap rates and the cost of debt."
Greer says the most significant change over the past half year in the
buyer profile is the absence of larger multi-family institutional buyers from
the marketplace. "After leading the market in larger asset purchases for three
to five years, the institutional buyer group chose to back off. However,
moving into the second and third quarters of 2009, we are seeing increased
interest from not only the traditional multi-family institutional investors
but also from bigger institutions entering the market for the first time in
many years, wanting to complement their portfolios and reduce risk. They see
the multi-family sector as a safe haven."
According to the report, renovated buildings have been a prominent
product in both current listings and sales completed in the first quarter of
2009. "More high profile, quality buildings have come on to the market
recently. Investors who purchased undervalued and underperforming assets
increased these assets' value through significant renovations in order to sell
for a profit. This vendor group is followed closely by individual owners
looking to liquidate their equity in their properties," says Brodie.
He continues: "Vendors seem to be selling today because of uncertainty in
the market over the next six to 24 months. They realize they've missed the
peak; however, they are still locking in substantial gains made over the last
two to three years."
According to CMHC, vacancy rates remain steady for rental apartment
buildings in Vancouver at below one per cent with rental rates holding,
whereas "other assets are generally seeing increased vacancies and declining
rental or lease rates," notes Greer.
"Although many owners have mentioned it is becoming more difficult to
rent out vacant units quickly and at previously achieved rents, we anticipate
rents to remain at historic levels and vacancies to stay low in well-located
areas in the foreseeable future," says Greer. "This is mainly due to the lack
of purpose-built rental projects being undertaken by developers. Competition
from condo rentals entering the market will affect overall vacancy, but rental
rates required by condo investors tend to be much higher than rents required
in traditional rental buildings."
The report also highlights Vancouver City Council's recently proposed
amendments to the Residential Tenancy Act, which includes requiring landlords
to allow tenants evicted for the purpose of renovations to reoccupy their
units once renovations are completed at the same rent they were paying prior
to renovations, with the next annual increase limited to inflation +5% per
"We believe the City of Vancouver needs to fully understand all
implications, from both a tenant's and landlord's perspective, before it
proceeds with some of the recommended changes to the Residential Tenancy Act,"
points out Avison Young sales associate, Matt Saunders. "The proposed changes
would have a considerable effect on the quality of buildings as landlords
would no longer be incented to perform renovations on the already aging supply
of rental stock."
Greer adds: "Owning multi-family assets is paying off for investors and
we are seeing a resurgence of investor interest in this asset class. We
anticipate sales in 2009 to continue to improve from the cycle's bottom in the
fourth quarter of 2008."
Founded in 1978, Avison Young is Canada's largest independently-owned
commercial real estate services company and the only national, Canadian-owned,
principal-managed real estate brokerage firm in the country. Headquartered in
Toronto, Ontario and ranked among Canada's leading national commercial real
estate organizations, Avison Young is a full-service commercial real estate
company comprising more than 500 real estate professionals in 12 offices
across Canada and in Chicago, IL. The company provides value-added,
client-centric investment sales, leasing, advisory, management and financial
services to owners and users of commercial, industrial and multi-residential
real estate properties.
- Avison Young British Columbia Q1 2009 Multi-Family Investment Report,
- Photos for Media use:
If you are unable to open the links, please contact Sherry Quan for PDF
versions. Thank you.
For further information:
For further information: For further info, comment, photos: Sherry Quan,
Director, Corporate Communications (B.C.), Avison Young: (604) 647-5098 or
cell: (604) 726-0959; Rob Greer, Principal, Avison Young: (604) 687-7331;
Michael Brodie, Multi-Family Investment Advisor, Avison Young: (604) 687-7331;
Matt Saunders, Sales Associate, Avison Young: (604) 687-7331