An analysis on the vacancy rates in the properties in the Vancouver CMA reveals the general demand and supply levels for accommodation in the market. These represent key revenue drivers for the property rental market. Should supply outstrip demand, vacancy rates are expected to rise and ultimately apply downward pressures on rental rates. On the other hand, constantly achieving vacancy rates of zero percent appears unrealistic. Although there are no prescribed levels of a suitable vacancy rate, it should ideally be kept low. The average rental rates in various zones also indicate the general level of demand and supply of rental accommodations according to the popularity of that zone. Logically, highly desirable locations command higher prices.
In response to the growing population and employment in the Vancouver CMA, vacancy rates for purpose-built rental apartments and rental condominiums fell by an average of 1.4 percent and 0.9 percent respectively, between October 2010 and October 2011 (refer to Exhibit 2). This decrease was felt across all bedroom types. Furthermore, migration-driven population growth in the Vancouver CMA added new households, which fueled rental-housing demands. Between 2006 and 2010, the number of international immigrants arriving at the Vancouver CMA averaged 40,000 annually. This can be translated into approximately 16,000 to 18,000 additional households per year. As these new households are less likely to purchase properties immediately, they represent a substantial source of rental income. In Downtown Vancouver, vacancy rates were as low as 0 percent (3-Bedroom and above). While employment continues to move in an upward trend, the vacancy rates of purpose-built rental apartments are expected to remain low. An interesting pattern to note is the market’s general preference for large rental buildings (refer to Exhibit 3), likely due to the additional amenities such as exercise facilities, parking space, on-site laundry and etc. For example, rental apartments in Vancouver CMA comprising of 6 to 19 units, the vacancy rate was 1.3 percent compared to 0.7 percent in apartments with more than 200 units. This pattern was also noticed in rental condominiums around the same area (Canada Mortgage and Housing Corporation, 2011).
Despite a burgeoning demand for rental properties, the average growth in rent was minimal as demands were satisfied with an adequate supply of rental units, particularly rental condominium apartments. This resulted in a slight drop in the pace of rent growth rates as compared to 2010. In 2011, the average growth of rent increment in Vancouver CMA was 2.2 percent, which underperformed the inflation rate of 2.3 percent. (Canada Mortgage and Housing Corporation, 2011). This seems to indicate the plateauing of rental growth rates as it has been declining for four consecutive years.
On the other hand, given the higher rental demand for housing within the city center, purpose-built rental units in these areas were able to achieve slightly stronger rental rate growth than areas such as Burnaby, Richmond and Surrey. Average rents in the City of Vancouver rose by 2.8 in 2011 YoY. Supplementary to the above-mentioned point regarding the market’s preference for larger rental buildings, the average rents in these buildings were largely higher than those in smaller buildings. The average rent for rental buildings with 6 to 19 units was $984 while buildings with more than 200 units achieved an average rent of $1,208 (refer to Exhibit 4). Given that most rental condominiums possess newer and well-maintained amenities as compared to purpose-built rental apartments, the average rents for condominiums were approximately 20 to 30 percent higher than apartments. However, it is still lower than the premium levels of 45 to 60 percent earned in 2010 due to supply pressures(Canada Mortgage and Housing Corporation, 2011).
The declining vacancy rates and modest average rental rates growth as highlighted above supports the Canada Mortgage and Housing Corporation’s (CMHC) stable outlook on the rental market largely across Vancouver for 2012. The CMHC forecasts average rental rates to grow at modest rates, in line with growth in inflation rates (2011).
As mentioned above, the property rental market in Vancouver is divided into zones and the average rental rates in each zone may differ depending on the desirability of its location. Figure 1 below presents the average rents for different types of accommodations ranging from Bachelor to more than 3-Bedroom apartments in various zones (Zone 1 to 14 from left to right excluding Zone 11 which is the University Endowment Lands Zone) as of October 2011. With the exception of zone 10 (Southeast Vancouver), 3-Bedroom apartments across all zones yielded the highest rental rates in October 2011. The rents for 3-Bedroom apartments ranged from $1,072 (Southeast Vancouver) to $2,961 (West End/Stanley Park) per month. The overall rent in each zone, represented by their median prices, highlight lucrative clusters of zones and as expected, Zones 1 to 6 were able to command higher rental rates compared to the remaining zones. The range of median prices in Zones 1 to 6 is between $1,306 and $1,530 while Zones 7 to 14 (excluding Zone 11) vary between $858 and $1,045. This suggests that 3-Bedroom apartments within Zones 1 to 6 will be one of the more profitable sectors.
One of the factors supporting the positive sentiments in the property rental market is the forecasted growth in Vancouver’s population. Especially important to the market is the growth of the population aged between 20 to 34 years old, as they are more likely to shift houses compared to those above 45 years old (CMHC, 2011. This is likely attributable to the tendency of people in this age group tochange jobs more frequently, which leads to a need to relocate. In addition, with lower income levels – especiallythose at the start of their career, these young workers may not be able to owna property. Figure 2 below highlights the trends in this particular age cohort and by 2020, this group is expected to increase by 21.4 percent to 1.02 million.
The rental rates within Zones 1 to 14 also vary according to the year the apartment or condominium was constructed. As evident from Figure 3 below, rents across all zones and most accommodation types are generally higher with newer properties. This is foreseeable as facilities and amenities are newer. Hence, it will be beneficial to the market if there were more property starts in the pipeline.