Alex Ferguson Presentation Edmonton Real Estate Conference - - PowerPoint PPT Presentation

Alex Ferguson Presentation Edmonton Real Estate Conference 2005-05-04

New Product Impact on Rental Rates?

Edmonton Rental Comparison of Rental Completions

• Vs. Rental Rate Changes

(CMHC 1995-2004)

39 4 166 257 488 934 1342 1192 1805 1360

• 2%

0% 1% 6% 4% 4% 9% 7% 2% 1% 200 400 600 800 1000 1200 1400 1600 1800 2000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Rental Completions

• 4%
• 2%

0% 2% 4% 6% 8% 10% % Change in Rental Rate

Completions Rental Rates

• In the past new product did not influence average rental rate changes
• Demand has a much greater impact on rental rates than inventory age
• Over past 5 years 10% of the total rental inventory was “completed” while rental

rate increases diminished

New Product and Vacancies ?

Edmonton Rental Comparison of Rental Completions Vs. Vacancy Rates (CMHC 1995-2004) 10% 8% 5% 1% 2% 1% 1% 2% 3% 5% 39 4 166 257 488 934 1342 1192 1805 1360 0% 2% 4% 6% 8% 10% 12% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Rental Completions

200 400 600 800 1000 1200 1400 1600 1800 2000

% Change in Rental Rate

Vacancy Rates Completions

• Market data does not reflect the benefit of new or renovated product
• Older product will feel the brunt of the vacancy activity and force reduced rates
• r renovations of older product
• New product is not acting as a catalyst to increase average rental for market

Rental Rates and the Future?

Edmonton Rental Comparison of Vacancy Rates Vs. Rental Rates (CMHC 1995-2004)

• 2%

0% 1% 6% 4% 4% 9% 7% 2% 1% 10% 8% 5% 1% 2% 1% 1% 2% 3% 5%

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Rental Completions

Rental Rates Vacancy Rates

• Over past 10 years vacancy and rental rates have had an inverse relationship

Rental Rates and the Future?

Short term – Below average rate increases

• Rates will continue to be influenced by demand
• Rate increases will be concentrated to new or refurbished units
• Home ownership continues to be accessible for the masses, Alberta’s

affordability index (RBC), lowest in Canada at 25.4% average 33.3%

• Mortgage rates will continue to be flat
• New housing prices are increasing but only due to raw material costs, in other

words builders are meeting demand

Mid Term – Increasing rental rates

• Personal incomes will fail to keep pace with price increases in housing, energy

and consumer goods

• The market will shift away from a demand driven environment
• Rental rates will be forced to increase despite demand because of operating

expenses, new rental construction costs, refurbishing costs, and asset values

• Increasing homeownership costs will increasing rental periods (savings)

Wild Card

• Institutional investors that can accept lower returns
• Eg. GWL Calgary 452 Units since 2002, Vancouver 526 since 2000
• Too much institutional monies looking to be parked

Cap Rate Expectations?

Cap Rate Expectations

4.0% 5.0% 6.0% 7.0% 8.0% 1 2 3 4 5 6 7 8 9 10 11 12

Periods Cap Rate

Short Term Cap Rates will continue to reduce since rental rates are not expected to increase at above average rates and asset values will continue to increase Medium Term Cap Rates are expected to stabilize albeit lower rates than present