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