The latest Canada Mortgage and Housing Corporation (CMHC) rental market survey (released November 2nd, 2015) indicated that the apartment vacancy rate in Calgary increased to 5.3% in the month of October. Year-over-year, this represents a substantial increase from the 1.4% vacancy rate reported in October of 2014.
However, apartment vacancy was only up an additional 2.1% from the 3.2% vacancy rate reported by CMHC in their April 2015 rental market report, and the latest figures released are being compared by many to the near historical lows during the peak of the last economic cycle.
Yes, it is without a doubt that we are experiencing a rise in the number of vacant units throughout the city of Calgary and the market is returning to a more balanced equilibrium; however, a closer look at housing fundamentals show a more positive long-term outlook for the city's rental market. A few of the major concerns impacting the Calgary rental market are discussed below:
In-migration has slowed considerably but is still expected to average 10,000 migrants per year for both 2016 and 2017. With a total rental universe of 34,904 units in Calgary, 5.3% vacancy equates to approximately 1,850 vacant units. When compared with 20,000 potential new residents (with a high propensity to rent) re-locating to Calgary over a 2-year period, this number is much easier to digest.
CMHC data indicates that 8,993 apartment units are currently under construction. This number includes all phases of development (from the initial permitting stages to those projects nearing completion) and comprises both condominium and rental product. Considering that not all projects will break ground (as a result of the current economic climate) and that the majority of the condo product will be absorbed in the homeownership market, the number of units delivered to the rental market will most likely be significantly lower than 8,993.
Transition to homeownership in a down market
According to the Calgary Real Estate Board (CREB), the current housing inventory priced less than $400,000 (all apartment, attached, and detached product listed on MLS) totals 1,851 units. However, with Calgary`s recent economic woes, homeownership is no longer a viable option for a number of residents due to layoffs and salary clawbacks. A quick analysis of the cost of condo ownership versus Mainstreet rents show an average homeownership premium of 74%. Transitioning to homeownership in a down market may seem like a good idea, but for many, the numbers still do not work.
There have been thousands of layoffs in Calgary during 2015, with roughly three-quarters of these job losses concentrated in the energy sector. Although we are seeing substantial job losses in full-time employment related to the energy sector (such as construction and business services) there has been strong growth in part-time employment. With a high correlation between part-time employment and the likelihood of renting, the trend is favorable. As shown below, the job numbers bode well for the rental market.
Overall, the Calgary rental market will be softer in 2016 than it has been over the past 5 years. However, many of the data points are still encouraging for the long-run. Market fundamentals demonstrate a positive outlook for Calgary`s rental market and show that Mainstreet is well-positioned to weather the storm and maintain stable operations in the mid-market segment.
Mainstreet Equity Corp. is a publicly-traded (TSX: MEQ) residential real estate company in Canada. Mainstreet currently owns and operates properties in Surrey, BC; New Westminster, BC; Abbotsford, BC; Calgary, AB; Cochrane, AB; Lethbridge, AB; Edmonton, AB; Fort Saskatchewan, AB; and Saskatoon, SK.
Mainstreet provides affordable, renovated apartment suites to Canadians, and is committed to creating real value without diluting shareholder interests.