With large investors buying apartment blocks, the rental vacancy falling and the oil-fired city economy booming, developers have started or built more than 1,800 new rental apartments in Edmonton in the past year. In a recent survey, Avison Young counted more than a dozen new rental buildings underway or complete from downtown to the suburbs, including two 16-storey downtown towers totalling about 500 units that will complete within months. In Leduc, an industrial suburb that serves the oil industry, a five building, 269-unit rental complex opened late last year. Other large rental buildings are underway in Fort Saskatchewan and St. Albert, despite multi-family-zoned land prices topping $910,000 per acre.
Meanwhile, real estate investment trusts and other large landlords have swooped into Alberta's capital to buy up larger rental buildings and portfolios, Avison Young confirms. While low-rise apartment buildings are selling for an average of $111,000 per door, prime concrete buildings are moving in the $130,000 "per door" range or higher, based on sales reported to Western Investor's popular Done Deals section.
Average capitalization rates on Edmonton apartments were in the 6.5 per cent to 6.75 per cent range last year, but "aggressive competition for new product" has pushed cap rates down to the 6 per cent amidst multiple bid situations early in 2012, Avison Young found. An example is a 94-suite rental building on 37th Avenue that recently sold for $186,170 per apartment with a cap rate of 6.1 per cent.
Eager landlords are understandable. With oil flirting with US$100 per barrel, there has been a rush of workers into the city and its suburbs as resource projects expand. The unemployment rate is now below 5 per cent and Edmonton's economy is expected to grow 3.4 per cent this year and 4 per cent in 2013. The average rent for a two-bedroom Edmonton apartment is $1,036 per month, and rising in a city with no rent controls.