Rental units returning to popularity
Brigil Construction, which boasts some 2,000 rental units in the area, is finishing off its latest project at 460 St. Laurent Blvd. The 147-unit building is slated for occupancy in the summer of 2017. Errol McGihon / Postmedia
There’s a new kid on Ottawa’s housing block – well, maybe a returning kid is more accurate.
The purpose-built rental apartment — long supplanted by condos, many of which were purchased and rented out, is striding across town from Orleans to Kanata as both condo and new-home construction remain sluggish and builders look for other revenue streams.
According to Canada Mortgage and Housing Corporation, in 2015 purpose-built units accounted for 46 per cent of all apartment starts in Ottawa, with condos making up the balance. That’s a number that hasn’t even been approached since 2002. It may not be a return to the early 1990s when condos were still relatively rare and purpose-built units comprised 80 per cent and more of the apartment market, but the current numbers are telling.
But are they indicative of a trend, or just a blip?
“I think it’s a permanent shift in the market,” says Jaime McKenna, a senior vice-president with Minto Properties Inc., a leader in Ottawa’s residential rental sector. “It speaks to housing prices becoming more and more out of reach, and people are looking to new, high-quality products and amenities in rental properties.”
Derek Lobo agrees. Ottawa is “at the beginning of a 10-to-20 year cycle,” says the CEO of Rock Advisors Inc., a Toronto brokerage specializing in rental apartments across Canada.
He says there’s a country-wide shortage of purpose-built units and with cities growing and interest rates still at historic lows, apartment construction is a natural for home builders.
Lobo points to another enticement. If a commercial landlord loses the tenant who’s renting 100,000 square feet, that landlord has a problem. If the owner of a similarly sized apartment building loses a tenant, he or she still has all the other tenants paying rent. “Apartments are one of the safest asset classes to invest in,” says Lobo.
Real estate services organization Collier International says Ottawa developers are focusing on small, efficient apartments in 10-to-15 unit buildings, primarily near LRT sites and major employment centres. These projects have commanded top rental rates and have been quickly absorbed according to Colliers.
Anne-Marie Shaker, Ottawa market analyst with CMHC, is more cautious about interpreting the uptick in local apartment construction. “You have to be careful about drawing conclusions about trends,” she says. As to the longevity of the growth in construction, she says that depends on what happens in the condo market going forward (there’s currently an oversupply of unsold units), and whether the employment rate among younger people, who typically rent before owning, goes up or down.
Interestingly, while current employment rates among 15-to-24 year olds are good and therefore prompting some of that demographic to rent, weaker employment among the 25-to-44-year-old contingent means that group is staying longer in rental accommodations rather than buying.
But it’s not just about employment, according to Shawn Bellman, marketing director for the Richcraft Group of Companies. Richcraft, traditionally a home and condo builder, is adding rentals to its portfolio, including urban towns at east-end Trailsedge. It has also turned condos at Fieldstone Flats in Barrhaven into rentals and done the same with some of its east-end Brownstones.
Bellman says younger people “want to spend their money going to (Mount) Tremblant, not spend the weekends working in their yards.”
That attitude may well change when those people start raising families, but for now it’s helping spike rental construction.
Bellman also notes that thanks to the military and the RCMP, Ottawa is a “transient” town, and employees facing regular new postings may prefer the flexibility of renting over owning.
“Our rentals have been doing very well, and as we move forward we’ll be doing more purpose-built,” he says.
It’s not just working folks who are renting. Larry and Diane Ward, both retired, sold their family home in nearby Katimavik to become ground-floor tenants in 2014 at William’s Court, a luxury apartment project in Kanata Lakes. The couple pay $2,500 a month for their 1,240-square-foot unit.
They initially looked at adult lifestyle bungalows and condos, but were put off by the cost of both as well as the possibility of significant condo fee increases down the road. Renting, says Larry, “freed up money to invest and travel. And it’s maintenance-free. We have a large patio where I can barbeque, and it’s a nice place to entertain.”
Potential renters in Ottawa also enjoy a vacancy rate that CMHC predicts will hit 3.8 per cent this year. That’s the highest it’s been since 2004, although it’s expected to edge down to a more competitive three per cent in 2017.
CMHC estimates that the average two-bedroom apartment in Ottawa will cost $1,195 a month this year and that rents will increase two per cent in 2017. That compares to an estimated $1,325 a month in the Greater Toronto Area and more than $3,200 in the City of New York. In Montreal, a two-bedroom unit is roughly $775.
Such factors made apartment hunting relatively painless for Hailey O’Connor. The fourth-year University of Ottawa student rented through Sleepwell Property Management and says: “It was a really great experience.” She’s sharing a newly renovated, three-bedroom unit near the university with two roommates. It costs $2,000 a month.
There’s a good supply of off-campus student housing in Ottawa according to CMHC.
With all this going on, it’s hard to find major builders who aren’t involved in the newly buoyant purpose-built apartment market.
Brigil Construction, which boasts some 2,000 rental units in the area, is finishing off its latest project at 460 St. Laurent Blvd. The 147-unit building is slated for occupancy in the summer of 2017.
Claridge Homes is adding to its rental portfolio with new towers on Lisgar Street and Montreal Road. Phoenix Homes is doing the same in both Orleans and Vanier. Both companies have also hung onto some units in existing projects and now rent them out.
Cardel Homes is also dipping its toe into the rental waters with Strata, a stacked town product with open-concept designs in west-end Blackstone. The company expects to start leasing next year.
Cardel made the move, in part, because rising prices are making home purchases more difficult. Renting is a way for potential buyers to have a home while saving money toward a down payment, says the company’s Ottawa president Greg Graham.
Echoing other builders, he adds that rentals mean a slow, but steady return on investment. “It can prove to be a nice annuity in the long term.”
Source: Ottawa Citizen, 26 August 2016, Patrick Langston