Rental market investment comes crashing down
Despite drop-off in activity, investors remain bullish, according to report
Investment in Edmonton's rental market went from red hot to ice cold in the first six months of 2020, a new report shows.
“There was over $500 million in apartment transactions in the first quarter,” says Matthew Boukall, vice-president of product management for data solutions at Altus Group. “That's the highest dollar volume we've ever seen.”
Altus regularly tracks large apartment sales in the city. And in a recently released report for the second quarter (Q2) of 2020, it found activity plummeted following the record-setting start to the year.
In fact, investment activity from April to June in large rental apartment complexes was the lowest on record since Altus began tracking the sector.
Only six transactions occurred worth $14 million.
“It was particularly jarring because it was the worst quarter on record coming off the best quarter on record on the apartment side in Edmonton,” Boukall says.
Despite the drop-off in activity, investors in the sector remained “bullish” on investing in the apartment segment, the report found.
That sentiment, however, was not uniform throughout the threemonth span as investors were leery in the early weeks after the pandemic hit, Boukall adds.
“One of the concerns at the start was that people would stop paying rent or would vacate the property,” he says, adding those concerns turned out to be unfounded.
The majority of major investor in the apartment sector “indicated they got upwards of 95 per cent of the rent collected in April and May,” he says.
As such, investor sentiment started to rebound heading into the summer.
“Fundamentally rental demand remained strong, and that's why investment activity started coming back.”
Boukall further adds Edmonton has long been viewed as a strong rental market by investors. “There is a healthy supply and very strong demand.”
In part, that's because the city has a large population of young adults, many of whom work in trades and technical jobs that lead them to working temporarily in different locations.
“Edmonton is the service hub for pretty much all of northern Alberta and part of northern B.C., so people may come to Edmonton and then work up in Fort McMurray, and then come back,” he says. “And then they go to work in Grande Prairie or Prince George, and return to Edmonton.”
It was particularly jarring because it was the worst quarter on record coming off the best quarter on record.
As a result, these workers often rent due to the transient nature of their work.
Boukall adds early numbers from July to the end of September also show increased investor interest, suggesting rental demand is again strong in Edmonton.
What's more, demand should remain robust as long as the pandemic continues to weigh on the economy, along with the long-running challenge of low commodity prices in the energy sector.
“The initial third quarter numbers appear to be much stronger than Q2,” he says.
Yet it remains to be seen how strong rental demand, and for that matter investor interest, will remain for the remainder of 2020.
“We're not out of the woods yet,” Boukall cautions.