Multi-family real estate is set for a mixed year, with some asset classes like purpose-built rentals and apartments seeing healthy activity and other segments like owned buildings slowing in a difficult development environment.
Multi-family, which refers to buildings with more than one dwelling unit, can be either owned or rented.
A more balanced rental market is anticipated, with higher vacancy and softer rents, especially at the high end, which is expected to alleviate tight conditions. Meanwhile, pre-sales are reportedly weak, and some projects on the for-sale side might not see the light of day if they haven’t already started construction.
Purpose-built rentals are seen as a particularly bright spot, adding to much-needed housing supply.
“I think we’re going to see, longer-term, some more balance in our market,” said Ryan Berlin, head economist and vice-president, intelligence, with Rennie & Associates Realty Ltd.
“There’s a lot of new purpose-built rental supply coming, which I think is a very, very good thing throughout Metro Vancouver. I think that should alleviate some of the tightness in the rental market.”
Berlin said the purpose-built segment is seeing busy construction, with a record number of purpose-built rental units under construction in Metro Vancouver at over 20,000. For each of the past 24 months, he said, purpose-built rental starts have been running at an annualized rate of 10,000 units.
“We see that continuing, and that adds to the dwelling stock,” he said.
Meanwhile, Berlin expects fewer completions of for-sale homes in the multi-family space, pointing to a depressed pre-sale market and fewer towers launching or coming to market. This shouldn’t affect projects already under construction, but could foreshadow a slowdown in the near term, he said.
“Because the projects are not getting to the stage of starting construction, we can forecast out, fairly easily, that those buildings will not complete, they will not be delivered to the market and add to the dwelling stock,” he said. “We’re going to see a couple of years of a slowdown in the additions of multi-family owned dwellings. … Some crosswinds [are] there for supply.”
Higher cap rates
In addition to purpose-built rentals, another bright spot is the apartment segment, where an active market is offering investors lower pricing and attractive yields.
“A year ago, it was like crickets,” said Mark Goodman, principal of Goodman Commercial Inc. “There was like a freeze in the market. The delta between the bid and the ask was pronounced, and it was very hard to get anybody enthusiastic about selling or buying. Sellers wanted pricing from two years ago, and the buyers couldn’t make the numbers work.”
Fast-forward to the present, and market conditions have significantly improved, he said.
“This is a magical moment in time where the gap between the cost of borrowing and the yield that you will get for a building, it makes financial sense.”
Capitalization rates have risen, Goodman explained.
“A few years ago, cap rates were below three and the cost of money was below three. Well, now, the latest five-year CMHC-insured mortgage is hovering around 3.5 and cap rates have been pushed to four to 4.5 depending on the property, so you have a nice spread there where you can invest in the safest asset class, apartment buildings, and make a decent return.”
With more apartment properties hitting the market, Goodman said this is putting pressure on sellers to moderate pricing amid more listings. His firm has several Broadway Plan sites for sale, and prices are down from $200 per square foot buildable three years ago to $130 to $150 per square foot today.
Goodman cautioned that the market is not “frothy.” One challenge is the province’s tighter grip on landlords that has made it harder to evict renters and renovate or convert properties to other uses. Meanwhile, softening rents have led to more scrutiny of a project’s viability by lenders.
Edmonton a promising destination
Bradyn Arth, senior vice-president of investments with Marcus & Millichap’s Institutional Property Advisors division, said rental market participants should not expect rents to continue climbing as they did in recent years, affecting the viability of current projects.
“Some builders are banking on rents that are forecasted out two or three years to make sense of a pro forma, and that’s where you get into trouble,” he said. “You’ve got to take today’s rent, and if you’re in Calgary or a market where rents are actually coming off, it’s really difficult to make a development pro forma make sense.”
In Western Canada, Arth said, Edmonton, where his team of seven is based, is a promising market that offers stability. His team did over $1 billion in apartment sales last year across 39 transactions in Western Canada, a large portion of which were in Edmonton.
“Edmonton … is still fairly sought after because your Day 1 going-in yield is fairly attractive,” he said.
“There’s still a little bit of growth in Edmonton as well. We’re not reversing on our rent growth, there’s still positive trends here, it’s still affordable. Last year, everyone was chasing Calgary because the growth was insane. That usually happens in Calgary, it’s boom or bust. It’s just a bit more volatile.”
Regarding vacancy, Arth said Edmonton is “pretty solid” with vacancy well under five per cent for the market as a whole. He said vacancy is a bit higher downtown due to a rash of new developments that are in the midst of lease-up, skewing the vacancy rate higher compared to today’s sub-three per cent rates in the suburbs.
‘Gentle density’ helps
It’s easy to forget that multi-family can include everything from purpose-built rental towers and condo buildings all the way down to accessory dwelling units, secondary suites, carriage homes, garden suites, multiplexes and stacked townhomes.
Don’t overlook the power of small-scale, multi-unit housing, said Dan Winer, executive lead with advocacy organization Small Housing BC. He said “gentle density” that fits into single-family neighbourhoods can make a big difference to supply and affordability in the aggregate, without drastically increasing the demand for infrastructure servicing.
Gentle density refers to “homes that still exist within kind of a single-family archetype but allow for communities to live a little bit more compactly,” he said.
Gentle density has economic and social benefits, he said. Challenges for the segment include consumer awareness of its benefits, financial and legal barriers and moderating building permit values.
“The biggest challenge facing the sector is … making sure that consumers are aware of the opportunity, that residents are taking advantage of gentle density and thinking about whether they want to be a part of solving our housing crisis,” he said.
Winer is located in Kelowna, where building permit values fell to near five-year lows in 2024, but infill is a success story, with a record number of building permits and units for residential infill construction.
It’s hard to tell whether the province’s supply of small-scale housing is ramping up, since there is little consistency across the province in how permits are collected at the municipal level.
Still, Winer said B.C. is considered a leader in North America, with jurisdictions like California emulating the province’s regulatory approach to legalizing accessory dwelling units, for example.
“There’s definitely a lot of promise in this space,” he said.
