Purpose-built rental won’t save B.C. developers, some experts say

Rentals won't save builders

Photo: Chung Chow, BIV.

The historic Sen?á?w development could eventually provide 6,000 housing units in 11 towers at the south end of the Burrard Street Bridge on Squamish Nation land. Experts say it could transform the city’s rental landscape.

B.C. developers who have switched their focus from condo projects to rental projects in today’s weak presale market may be finding it’s not a panacea.

The economics are currently tough for purpose-built rental projects because of falling rents, lower immigration, high developer fees and financing challenges, some experts have told BIV.

The average asking rent for purpose-built and condo apartments in Vancouver was $2,630 in January, down 9.2 per cent from $2,896 a year earlier, according to Rentals.ca and Urbanation Inc.

“The thing with the market right now, condos are not viable. Rental projects are becoming unviable as well,” said Evan Allegretto, B.C. president of Intracorp Projects Ltd., which diversified into rental six or seven years ago.

Most sites are not vacant land, and developers must demolish something in order to build. But in many cases, the existing use is more valuable than what the site is worth as development land, he said.

Government programs are increasingly required for projects to proceed, he said. This includes low-interest, higher-leverage financing from the Canada Mortgage and Housing Corp. (CMHC).

Large developers like Intracorp can still access conventional financing due to the strength of their balance sheets and experience, but smaller groups are having trouble because banks perceive higher “execution risk” and require more equity, he said.

There are bright spots driven by demographics, including senior housing and for-sale townhomes, but the scale of those opportunities is small, he said.

Geoff Duyker, senior vice-president with Mosaic Avenue Realty Ltd. (Mosaic Homes), said purpose-built rental has been a core part of the business for the last decade.

The company’s Moody Yards rental project in Port Moody is currently 60-per-cent leased up. When it was going through the development process, rents were lower than they are today, he said.

Still, vacancies in the region are climbing due to changing immigration policy and negative population growth, he said.

In 2026, negative net international migration is expected to draw down Vancouver’s population for the first time in history, leading to a decline of 0.4 per cent, according to a Jan. 8 report by the Signal49 Research think tank (formerly the Conference Board of Canada).

That is easing pressure on rents, especially as a wave of “catching-up supply” hits the market, Duyker said.

Metro Vancouver’s rental pipeline hit a record high last year, according to Rennie & Associates Realty Ltd.

Carey Buntain, principal with Avison Young (Canada) Inc., said purpose-built rental is a desirable asset class but is going through an adjustment period as aggressive immigration policy is corrected, he said.

With zero rent growth, tenants are now shopping between buildings. Developers are trying to attract them with incentives, he said.

Purpose-built rental is a long-term business with a 10- or 20-year time horizon, he said. He said he sees more certainty in the future despite short-term challenges.

That’s partly because housing starts have fallen, he said. The impacts will be felt later this decade, which could see a very tight supply market and fewer incentives.

One barometer could be Sen̓áḵw, a First Nations development whose first phase is expected to deliver three buildings this year totalling about 1,400 units.

“There’s going to be a lot of eyes on that project,” Buntain said. “Will there be a ripple effect in terms of softening rents? How will that impact that submarket in Kitsilano or downtown Vancouver?”

Cynthia Jagger, executive vice-president with CBRE Ltd., said other pockets with new rental include Burquitlam and the Southwest Marine and Cambie area.

Vancouver had a one-per-cent or lower vacancy rate for decades, so the region is not used to a ton of new supply and competition, she said.

The rental vacancy rate in Vancouver was 3.7 per cent last October compared to 1.6 per cent a year earlier, according to the CMHC.

It’s tough to make a broad outlook statement because the market can vary from block to block and municipality to municipality, Jagger said.

It also depends on the type of building materials used and whether there are below-market components, she said.

“There’s a ton of success stories out there, and there is some grief as well,” she said.