The multi-residential rental sector is viewed as the most stable real estate sector and least affected by general economic conditions. Cash flow from multi-residential rental properties is diversified across a broad tenant base with minimal tenant concentration risk. According to ICREIM/IPD, the multi-residential rental real estate sector in Canada has demonstrated the lowest volatility and the best risk-adjusted investment returns among major income-producing real estate asset classes since 2002 (the period from which data is readily available). Since 2002, the Canadian multi-residential rental real estate sector has not experienced a single year of negative total return.

The Canadian multi-residential rental real estate sector will benefit from continued economic expansion and strong rental demand. Strong rental demand is driven primarily by continued population growth in major cities stemming from increasing immigration, continued urbanization particularly for the under-35 age group which is the primary renter group, deterioration of home ownership affordability, and the fundamental need for housing. Specifically, annual immigration in Canada reached 273,000 in 2017 and the Government of Canada has set a target of 310,000 for 2018 and raised the target to 340,000 by 2020, representing a 25% increase from the 2017 level. Additionally, since 1991, annual immigration to Canada has averaged 243,000 people per year, 48% of whom have chosen to reside in Ontario, and according to the CMHC Rental Market Report - Ontario Highlights 2017, approximately 67% of immigrants opt for rental accommodation when arriving in Canada, which is a key driver of rental demand. Since 2001, the average personal income in Canada has grown by a CAGR of 3.3%, compared to the average growth in house prices of 6.8% over the same time frame. Notwithstanding the strong income growth as a result of continued economic expansion, the propensity to rent across most age groups has risen due to the significant increase in the affordability gap between home ownership and rental accommodation. Rental vacancy rates are projected to continue to decline across Canada, while average two bedroom rents are forecast to continue to grow after having increased by an average of 2.5% per year over the past 10 years.

In addition, there are significant barriers to the creation of multi-residential rental supply given the challenging economies of scale for new entrants to achieve, principally as a result of rent control legislation and high development costs (primarily driven by high land costs and development charges). A replacement cost estimate provided by the Appraiser estimates the aggregate replacement cost of the Initial Properties to be $1.26 billion. This estimate is in excess of $130 million higher than their appraised value (excluding any portfolio premium). In order to achieve the same returns on investment, a competing, newly built property would require significantly higher rents versus existing properties, making development of multi-residential real estate less attractive from a return perspective than purchasing existing product. In addition, the multi-residential rental sector is generally more management intensive relative to other real estate sectors, primarily due to short-term leases coupled with high turnover, large numbers of individual tenants, heavily regulated rent and development environment, as well as the large number of capital projects undertaken throughout the life of an asset. The above-mentioned factors contribute to making an institutional management platform a critical component for achieving income maximization, while also acting as a further barrier to entry for smaller market participants. Given the above dynamics, there has been limited new supply of purpose-built rental accommodation in the country, with only an average of 17,933 new suites, or approximately 0.9% of the total supply, started per year on average in Canada since 1995.

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  Increasing Rental Demand >>
Overall demand for residential rental accommodation has historically been stable and is expected to increase in the future. Strong population growth... More >>

  Favourable Population Growth Outlook >>
According to Statistics Canada, the Canadian population is forecast to increase by 9% from 2016 to 2022, while Ottawa's population is forecast to grow by 7%... More >>

  Demographics and Propensity to Rent >>
Due to the importance of age on housing decisions, demographic shifts can have a profound impact on demand for different types of housing... More >>

  Home Ownership Rates and Declining Affordability >>
Diminishing house affordability across key markets is expected to limit the growth of home buying demand and lead to a greater share of renter households... More >>

  Limited Rental Supply Growth and Declining Vacancy >>
The replacement cost of multi-residential rental buildings is substantially higher than the value for which they can be purchased in the market... More >>

  Strong Average Rental Rate Growth >>
Rental affordability, measured as a percentage of personal income, in each of Toronto, Ottawa, Calgary and Edmonton has broadly remained in line... More >>

  Economic Data and Trends by Region >>
Canadian economic growth has been consistently strong over the past decade, with Canada leading all G7 nations in total GDP growth from 2007 - 2016... More >>

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