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Edmonton’s multi-family sector seeing ‘robust investor demand’

Cap rates of five to six per cent — along with relative economic diversity — make Alberta’s capital city an attractive proposition, says report

The multi-family sector in Edmonton has seen strong investment over the past year, according to a report released November 27 by Marcus & Millichap.

The commercial brokerage said that the interest was due to affordable per-door prices coupled with cap rates exceeding those of many other metropolitan areas.

Report author Michael Murphy, research analyst at Marcus & Millichap, wrote, “Robust investor demand compressed the market’s average cap rate 50 basis points to rest in the upper-four per cent to low-five per cent territory over the past four quarters. In more suburban locations of Edmonton, investors found assets with initial yields above six per cent.”

The report said that the high cap rates are luring “yield-driven investors” away from other metro areas, but that was not the only reason for the strength in Edmonton’s multi-family sector.

It added, “Heightened commercial investment in other asset classes has made the market more attractive to companies and residents, particularly in the dynamic urban core.”

Marcus & Millichap reported that, despite Alberta’s economic struggles as a province, due to depressed oil output, population growth and household formation in the province’s capital remained strong. This contributes heavily to the need for multi-family assets.

Murphy wrote that the mortgage stress test has kept many would-be homebuyers in the rental market, contributing to a decline in the rental vacancy rate to 5.3 per cent. He added, “Tightening vacancy supported a 2.6 per cent increase to the average rent to $1,155 per month.”

The supply of new purpose-built rental buildings has not kept up with demand, said the report — but more units are on the way.

It said, “Over the past four quarters, nearly 1,300 apartments were completed in Edmonton, trailing the 1,375 units added to the market during the prior year-long stretch. Almost 2,200 purpose-built rentals were underway in the third quarter as developers worked to meet robust housing demand. At 240 units, the Augustana in Downtown Edmonton is one of the largest projects coming down the pipeline and is scheduled for completion in 2021. The Ice District is also rapidly nearing completion and once finalized will be the nation’s largest mixed-use entertainment district. The 25-acre development comprises 1.3 million square feet of office space, 208,000 square feet of retail and over 1,300 multifamily units across three towers.”

Looking forward, the report said that Edmonton would continue to outpace other metropolitan areas of the province in terms of household and population growth, underpinned by the city’s relative economic diversity.

Murphy wrote, “Robust healthcare and financial sectors in the metro should help to ease challenges in other industries, fuelling the need for more rental units in Edmonton.”