CMHC 2020 Rental Market Survey Released
As Expected Fundamentals Impacted by the Pandemic Rents Grow 3.5%; Vacancy Increases to 3.2%
The Canada Mortgage and Housing Corporation (CMHC) released its annual rental market survey this morning. The average Canadian apartment vacancy rate increased 100bps to 3.2% versus 2.2% in October 2019. While this represents one of the largest y/y increases on record, it was hardly unexpected given the impact of the COVID-19 pandemic. We believe the current vacancy rate is still healthy and will trend back down through 2021 as the main demand drivers (immigration, temporary residents, post-secondary students, youth employment, etc.) return to normalized levels. Average two-bedroom monthly rents (same-property) were +3.5% nationally, with all major metros reporting flat or positive growth. Despite the pandemic, 2020 represented the higher end of the growth rate range (1.7%-4.3%) and was nicely above the 2.7% long-term average. Given this is an October survey, data provided by landlords is based on August/September results. While useful for multi-year comparison purposes, it is not necessarily reflective of the current apartment fundamentals.
Across the Major Markets, Fundamentals Remain at Healthy Levels. As expected, vacancy rates across Canada's major urban centers ticked up. Toronto, Vancouver, Montreal and Halifax all reported sub-200bps increases in vacancy, while Ottawa was +210bps. Calgary and Edmonton were at the higher-end with increases of 270bps and 230bps, as the pandemic was compounded by weakness in the oil industry. That said, same-property rents held in well across the major urban markets (range: 0% - +5.2%). While not provided for all markets, the report highlighted that Toronto/Vancouver in-place rents are 20%+ below market rents, while Montreal market rents are 46% above in-place rents, albeit off a lower, $895/ month base. This level of mark-to-market should continue to drive average rents higher.
The pandemic has created some near-term headwinds for the industry, which we expect to continue for the first half of 2021. However, we believe the asset class has demonstrated its resilience both on an occupancy and rent growth front. We expect fundamentals to return to pre-pandemic levels as the immigration taps are turned back on, in-person post-secondary classes resume and downtown offices begin to reopen. We continue to believe that the overall long-term industry fundamentals remain favourable for multifamily housing.
Across our multi-family housing coverage universe, our lone ACTION LIST BUY is CAPREIT (CAR.un). We have BUY ratings on five of the six remaining Canadian multi-family names we cover: Boardwalk REIT (BEI.un), InterRent REIT (IIP.un), Killam Apartment REIT (KMP.un), Minto Apartment REIT (MI.un) and Morguard North American Residential REIT (MRG.un).