Rental Market Overview 2010 & Beyond FRPO & GTAA Rental Market Update p January - 2011
Ted Tsiakopoulos Ontario Regional Economist CMHC Market Analysis Centre ttsiakop@cmhc ca
[email protected]
Housing market intelligence you can count on
Economic Shocks and Global Interest Rate Policy
IT Stock Market Crash September 11 11, 2001 US Housing/Credit Crisis European Debt Crisis
Canada Mortgage and Housing Corporation
Rental Market Key Stories: 2010/11 Canadian C di rentall markets k have h tightened i h d Housing hangover, improving economy, less monetary stimulus – good news for rental sector Bullish US rental sector – sign subdued US recovery ahead Investment fundamentals remain strong in Canada
Canada Mortgage and Housing Corporation
Apartment Vacancy Rates by Region 6
%
5
2008
2009
2010
ONT
QUE
4 3 2 1 0 BC
ALTA
SAS
MAN
Source: CMHC Canada Mortgage and Housing Corporation
NFLD
CAN
Source: CMHC Canada Mortgage and Housing Corporation
Ontario
Windsor
Toronto
Thuunder Bay
St.. Catharines-Niagara
Peteerborough
Ottawa--Gatineau
Oshawa
London
Kitchener K
2009
Kingston
Hamilton
14.0 12 0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
Guelph
Greaterr Sudbury
Brantford
Barrie
Apartment Vacancy Rates in Ontario
2010
Net Operating Income of Multi-Residential REITS 12
West
Central Canada & East
10 8 6 4 2 0 -2 -4 Q3 2009
Q4
Q1 2010
Source: NBF, Bloomberg Canada Mortgage and Housing Corporation
Q2
Q3
GDP and Job Growth by Province – 2010 3
NFLD
Jo ob Growth % chg
2.5
MAN QUE
BC
2
ONT SAS
1.5 1
ALTA 0.5 0 0
1
2
3 GDP % chg
Source: Statistics Canada, CMHC forecast Canada Mortgage and Housing Corporation
4
5
Vacancy Rate vs. Unemployment Rate 10 9
% unemployment rate
vacancy rate
8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Statistics Canada, CMHC forecast Canada Mortgage and Housing Corporation
Ontario Share of International Migration 85% 75%
Long Term Avg
65% 55% 45% 35%
Source: Statistics Canada
Canada Mortgage and Housing Corporation
2010Q1
2009Q3
2009Q1
2008Q3
2008Q1
2007Q3
2007Q1
2006Q3
2006Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
2002Q1
2001Q3
2001Q1
2000Q3
2000Q1
25%
Bank of Canada Overnight Rate
6
%
5
4
3
2
1
0 00
01
02
03
04
05
06
07
Source: Bank of Canada Canada Mortgage and Housing Corporation
08
09
10
Real Estate Cycle and Rental Demand Outlook Vacancy Low / Inflation Adjusted R Rent High Hi h
Vacancy Falling/Inflation Adjusted Rent Rising
Vacancy High(Inflation Adjusted Rent Low
Tighter Monetary Policy 2000
2004
2011
2012
Source: CMHC Canada Mortgage and Housing Corporation
Canada’s Economic Story MANUFACTURING INVESTMENTS
2010 story
ENERGY/NON ENERGY INVESTMENTS
2011 story
Canada Mortgage and Housing Corporation
Share % of Exports to Emerging Markets 20 18 16 Western Canada
14
Ontario
12 10 8 6 4 2 0 2000
2001
2002
2003
2004
2005
2006
Source: Industry Canada Canada Mortgage and Housing Corporation
2007
2008
2009
Economic Indicators Pointing to Gradual US Recovery So Softt US consumer co su e confidence co e ce levels eve s High US unemployment rates & growing duration High private and public sector debts US RENTAL MARKET PROSPECTS
Canada Mortgage and Housing Corporation
REIT Price to Earnings Multiples – Multi Family Sector 25 20 15 10 5
US P/E
CDN P/E
0
Source: NBF, Bloomberg Canada Mortgage and Housing Corporation
Factors Creating Vacancy Pressures +/-
Ontario Region
Factor
Vacancy + /-
Southwestern Ontario Manufacturing
Neutral
Nothern Ontario
Mining
Downward
Southern Ontario
Pull Forward Demand Effect & Immigration Downward
Technology Triangle Business Spending
Downward
All
Downward
Interest Rates & Economic Cycle
Source: CMHC
Canada Mortgage and Housing Corporation
1980M01 1981M02 1982M03 1983M04 1984M05 1985M06 1986M07 1987M08 1988M09 1989M10 1990M11 1991M12 1993M01 1994M02 1995M03 1996M04 1997M05 1998M06 1999M07 22000M08 22001M09 22002M10 22003M11 22004M12 22006M01 22007M02 22008M03 22009M04 22010M05
Canadian Long-Term Bond Yields
20 %
18
16
14
12
10
8
6
4
2
0
Source: Bank of Canada Canada Mortgage and Housing Corporation
Risk/Reward Trade-Off – Multi-Residential Sector Long Term Average Returns % (left scale)
12
Residential Real Estate Bonds
9
E Equities
G ld Gold
T-Bills
6
3
Inflation
0 0
10
20
30
40
risk (volatility of returns %) Source: ICREIM/IPD Canada Property Index Database, Statistics Canada, Bank of Canada, CMHC Canada Mortgage and Housing Corporation
50
Vacancy Rate Forecast Summary - Ontario CM As Hamilton Kingston Kitchener London Ott Ottawa St. Catharines Sudbury Thunder Bay GTA Barrie Peterborough Brantford f Guelph W indsor Ontario CM A Avg
2010 3.7 1.0 2.6 5.0 1 6 1.6 4.4 3.0 2.2 2.1 3.4 4.1 3.7 3.4 10.9 3 7 3.7
Source: CMHC forecast (f) Canada Mortgage and Housing Corporation
2011f 3.5 1.2 2.4 4.8 1 2 1.2 4.2 2.0 2.0 2.0 3.7 4.5 3.5 3.2 10.5 3 5 3.5
FINAL THOUGHTS Canadian rental market will tighten further, led by the west Monetary policy & economic cycle accommodating for rental Low cap rates a sign of lower long term yields but also strong buying vs. selling Investment outlook improving: p g lower vacancies & less turnover (opportunity), more supply (challenge) Slower rent growth, higher operating expenses, competing supply puts pressure on Ontario NOI next year
Canada Mortgage and Housing Corporation