Rental market stays strong for condo owners
Vacancy rate far below that of purpose-built rental units
Vacancy rates jumped in Calgary for rentals last year, but the market continues to remain strong for condominium owners renting out their suites in the secondary market.
The latest data from the Canada Mortgage and Housing Corp. found the vacancy rate for the secondary market in Calgary almost doubled in 2020 over 2019.
Yet at 1.6 per cent, vacancy remains far below the rate for the purpose-built, primary rental market at 6.6 per cent. CMHC market analyst Michael Mak notes the difference is a result of the flexible nature of supply in the secondary market.
“With the secondary rental market … people can pull their condo off the market, and even sell it,” he says. “With the primary rental market, those units are stuck essentially being rentals because it's very rare for corporations to turn them into non-rental housing.”
Contributing to the high vacancy rate has been the addition of new purpose-built apartment units to the market during 2020.
Even so, investors have shown more interest in Calgary's condominium market of late, says realtor Jared Chamberlain.
“With the condo market not having the same demand as the other markets in the city, there is an opportunity to get some great deals still for investments,” says the broker/owner of Chamberlain
With the condo market not having the same demand as the other markets in the city, there is an opportunity to get some great deals still for investments.
Real Estate Group in Calgary.
Among all housing types, condominiums have seen the greatest decline in resale prices since 2016 — down about 15 per cent, according to Calgary Real Estate Board data. As Chamberlain further notes, the lower price point presents an opportunity for investors to generate sufficient cash flow from rents to cover costs and net a profit.
Still, he notes the market remains competitive. Many homeowners, who might have sold in recent years, did not because they would have lost money on the deal. Consequently, several chose to rent their homes while moving to a new home — a situation made possible by low mortgage rates.
Now, with the resale market heating up, many of these owners are looking to sell.
“We're seeing some landlord owners retreating from this market, but (there are) also new ones coming up behind them to purchase,” Chamberlain adds.
Still, investors face significant competition from the new rental side.
Mak notes supply grew by 3.2 per cent last year, driven by the addition of new units. Many projects coming to the market today were planned two or three years ago, when developers foresaw an economic recovery in 2020, leading to higher migration.
“If you look back to 2018, the general consensus was that there would be a recovery in the economy post-oil bust, and there would be more demand for rental in the city,” he says.
“Then COVID happened,” dampening migration and rental demand.
He notes that landlords able to keep rents at or below the market average (about $1,200 a month last year) are likely to find steady demand. But rents could drop as new units come online, coupled with a continuation of the city's economic woes, Mak says.