Calgary vacancy rate could go even higher in 2016, say experts
Renters in Calgary stand to gain the most from the energy sector’s misfortune, with vacancy rates expected to increase after already jumping almost five-fold over the past year.
According to the Canada Mortgage and Housing Corp.’s (CMHC) Fall Market Report released in early December, Calgary’s vacancy rate rose from 1.4 per cent in fall 2014 to 5.3 per cent in October 2015.
The national average was 3.3 per cent.
“We expect the vacancy rate to edge even higher in 2016,” said CMHC principal of market analysis Richard Cho. “And with higher vacancy rates, tenants will have more choice in the market and landlords will have to do more to attract renters, naturally putting more downward pressure on rents.
Some industry insiders think the reported vacancy rate may even be on the low side, having increased substantially since the survey results hit the wire in December.
“I suspect that vacancies right now are closer to 10 per cent,” said Brett Turner, owner of Redline Real Estate Group Inc., a Calgary-based property management company and mortgage broker, citing a large number of non-traditional rental products hitting the market – from single-family homes rented to contract workers that have been released to those who have tried to sell but that can’t get the price they want.
In CREB®’s 2016 Economic Outlook & Regional Housing Market Forecast, chief economist Ann-Marie Lurie expects rising vacancy rates will place downward pressure on rental rates throughout 2016.
Also, higher vacancy rates and downward pressure on rents due to higher supply is expected to decrease ownership demand from investors.
“If economic conditions start to improve, as some analysts have forecasted for the later portion of the year, some renters may make the shift to ownership, especially if lending rates remain unchanged and housing prices continue to decline,” said Lurie.
Cho said apartment vacancy rates increased in every zone of the Calgary CMA in 2015.
“For instance, the vacancy rate in the downtown and Beltline zones rose to 6.9 and 4.8 per cent, respectively,” he said.
Migration out of the city, coupled with prolific and at one time much-needed purpose-built rental product coming online – Cho said well over 1,000 units of will soon reach completion – will also place additional upward pressure on vacancy rates.
“More rental supply from the primary and secondary rental market, along with lower net migration and weaker employment growth will keep the vacancy rate above historical norms,” he said.
While rents have yet to tumble – CMHC reports the average rent for a two-bedroom apartment in the city actually increased $10 to $1,332 last year – Turner believes they will eventually.
“I would advise landlords to plan for as much as a 25 per cent reduction in the upper-end of the market and an eight to 15 per cent reduction for standard apartment style units,” he said.
“It’s definitely going to get a lot tougher to rent your place out. Smart, proactive landlords will be OK. Amateurs need to be mindful not to make short-sighted decisions and rent to the wrong people. Every landlord needs to think loss control more than profit to hang on.”
Turner advises tenants, meanwhile, to make “aggressive offers” with potential landlords – “especially if the place in question is in competition with numerous others that are exactly the same – think condos or apartments.”
As for making the jump to home ownership, Turner agrees with CREB®’s forecast that 2016 will be a buyer’s market.
“If you found yourself previously priced out or not happy with the selection of available properties, you should look hard at taking advantage of the market condition this year,” he said.