rental market overview 2010 & beyond& beyond...rental market key stories: 2010/11 cdi l k h...
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Rental Market Overview 2010 & Beyond& Beyond
FRPO & GTAA Rental Market UpdatepJanuary - 2011
Ted TsiakopoulosOntario Regional EconomistCMHC Market Analysis Centrettsiakop@cmhc [email protected]
Housing market intelligence you can count on
Economic Shocks and Global Interest Rate Policy
IT Stock Market Crash September 11 2001 September 11, 2001 US Housing/Credit Crisis European Debt Crisis
Canada Mortgage and Housing Corporation
Rental Market Key Stories: 2010/11
C di l k h i h d Canadian rental markets have tightened
Housing hangover, improving economy, less monetary stimulus –good news for rental sectorgood 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 %
4
5 2008 2009 2010
3
4
1
2
0
BC ALTA SAS MAN ONT QUE NFLD CAN
Canada Mortgage and Housing Corporation
Source: CMHC
Apartment Vacancy Rates in Ontario
12 0
14.0
6.0
8.0
10.0
12.02009 2010
0.0
2.0
4.0
Barr
ie
Bran
tford
r Su
dbur
y
Gue
lph
Ham
ilton
Kin
gsto
n
Kitc
hene
r
Lond
on
Osh
awa
-Gat
inea
u
erbo
roug
h
s-N
iaga
ra
unde
r Ba
y
Toro
nto
Win
dsor
Ont
ario
Gre
ater K
Ott
awa-
Pete
. Cat
hari
ne Th u
Canada Mortgage and Housing CorporationSt
.
Source: CMHC
Net Operating Income of Multi-Residential REITS
12West Central Canada & East
6
8
10
2
4
6
-2
0
-4
Q3 2009 Q4 Q1 2010 Q2 Q3
Canada Mortgage and Housing Corporation
Source: NBF, Bloomberg
GDP and Job Growth by Province – 2010
NFLD
3
BCMAN
ONT
QUE
NFLD
2
2.5
% c
hg
SAS
ONT
1
1.5
ob
Gro
wth
%
ALTA0.5
1Jo
0
0 1 2 3 4 5
GDP % chg
Canada Mortgage and Housing Corporation
Source: Statistics Canada, CMHC forecast
Vacancy Rate vs. Unemployment Rate
10 %
7
8
9 unemployment rate vacancy rate
4
5
6
1
2
3
0
1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Canada Mortgage and Housing Corporation
Source: Statistics Canada, CMHC forecast
Ontario Share of International Migration
85%
65%
75%
Long Term Avg
45%
55%
25%
35%
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Canada Mortgage and Housing Corporation
Source: Statistics Canada
Bank of Canada Overnight Rate
%6
4
5
6
3
4
1
2
000 01 02 03 04 05 06 07 08 09 10
Canada Mortgage and Housing Corporation
Source: Bank of Canada
Real Estate Cycle and Rental Demand Outlook
Vacancy Low / Inflation Adjusted R Hi hRent High
Vacancy High(Inflation
Vacancy Falling/Inflation Adjusted Rent Rising
Vacancy High(Inflation Adjusted Rent Low
Tighter Monetary Policy
2000 2004 2011 2012
Tighter Monetary Policy
Canada Mortgage and Housing Corporation
Source: CMHC
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
14
16
18
Western Canada Ontario
8
10
12
4
6
8
0
2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Canada Mortgage and Housing Corporation
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Industry Canada
Economic Indicators Pointing to Gradual US Recovery
Soft US consumer confidence levels So t US co su e co e ce eve s
High US unemployment rates & growing duration
High private and public sector debts High private and public sector debts
US RENTAL MARKET PROSPECTS
Canada Mortgage and Housing Corporation
REIT Price to Earnings Multiples Multi Family Sector – Multi Family Sector
25
20
10
15
5US P/E CDN P/E
0
Canada Mortgage and Housing Corporation
Source: NBF, Bloomberg
Factors Creating Vacancy Pressures +/-
Ontario Region Factor Vacancy + /-
Southwestern Ontario Manufacturing Neutral
Nothern Ontario Mining Downward
Southern Ontario Pull Forward Demand Effect & Immigration DownwardSouthern Ontario Pull Forward Demand Effect & Immigration Downward
Technology Triangle Business Spending Downward
Source: CMHC
All Interest Rates & Economic Cycle Downward
Canada Mortgage and Housing Corporation
Canadian Long-Term Bond Yields
18
20 %
12
14
16
18
6
8
10
12
2
4
6
0
980M
0198
1M02
982M
0398
3M04
984M
0598
5M06
986M
0798
7M08
988M
0998
9M10
990M
1199
1M12
993M
0199
4M02
995M
0399
6M04
997M
0599
8M06
999M
0720
00M
0820
01M
0920
02M
1020
03M
1120
04M
1220
06M
0120
07M
0220
08M
0320
09M
0420
10M
05
Canada Mortgage and Housing Corporation
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2
Source: Bank of Canada
Risk/Reward Trade-Off – Multi-Residential Sector
12Long Term Average Returns % (left scale)
9
Residential Real Estate
BondsG ldE
6T-Bills
GoldEquities
3Inflation
0 10 20 30 40 50risk (volatility of returns %)
0
Canada Mortgage and Housing Corporation
Source: ICREIM/IPD Canada Property Index Database, Statistics Canada, Bank of Canada, CMHC
Vacancy Rate Forecast Summary - Ontario
CMAs 2010 2011fHamilton 3.7 3.5Hamilton 3.7 3.5Kingston 1.0 1.2Kitchener 2.6 2.4London 5.0 4.8Ott 1 6 1 2Ottawa 1.6 1.2St. Catharines 4.4 4.2Sudbury 3.0 2.0Thunder Bay 2.2 2.0Thunder Bay 2.2 2.0GTA 2.1 2.0Barrie 3.4 3.7Peterborough 4.1 4.5
fBrantford 3.7 3.5Guelph 3.4 3.2Windsor 10.9 10.5Ontario CMA Avg 3 7 3 5
Canada Mortgage and Housing Corporation
Ontario CMA Avg 3.7 3.5Source: CMHC forecast (f)
FINAL THOUGHTS
Canadian rental market will tighten further, led by the westCanadian 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 Low cap rates a sign of lower long term yields but also strong buying vs. selling
Investment outlook improving: lower vacancies & less turnover p g(opportunity), more supply (challenge)
Slower rent growth, higher operating expenses, competing supply puts pressure on Ontario NOI next year
Canada Mortgage and Housing Corporation