No rent hikes in the forecast, says Alberta’s biggest residential landlord431 views
Canada’s biggest residential landlord said Friday vacancies at its apartments in Alberta are on the rise as it lowers rents and offers incentives to attract tenants — and it doesn’t expect conditions will improve much for the rest of the year.
Calgary-based Boardwalk Real Estate Investment Trust, which owns 33,000 rental units in four provinces, said there are signs of weakness in Alberta’s rental market.
In July, the landlord saw a spike in the number of tenants who gave late notice to move out, which suggests some instability in the lives of renters who may be suffering from job losses, said Rob Geremia, the company’s president.
“That really got us thinking, and we felt our original assumption of beginning to see strength in (the second half of the year) has to be pushed out farther because we are not seeing the financial numbers to back that up,” Geremia said.
While the outlook is grim for investors, it means renters have much more choice in where they live, and will see their dollar stretching much farther than it did just a year or two ago, Geremia noted.
Boardwalk reported 3.3 per cent of its units were vacant in the second quarter ending June 30, up from 2.6 per cent a year earlier.
Looking solely at Alberta, its vacancy rate was a little higher, at 3.5 per cent, but well below what it was in recession-riddled 2009 when 5.2 per cent of its units were vacant.
In an effort to attract and retain tenants in the current oil price rout, Boardwalk chopped its rents by an average of five per cent, compared to the same month a year ago. It also spent $7 million offering tenants incentives, largely rent discounts.
“We saw a rough summer,” Geremia said. “In August, it seems to be a little better but it doesn’t give me enough comfort right now that it’s going to be strong in the third and fourth quarter.”
Stubbornly low commodity prices have forced sweeping job losses in Alberta’s oilpatch and helped push the province’s unemployment rate to 8.6 per cent in July, much higher than the previous recession’s peak jobless rate of 7.3 per cent.
The bleak indicators mean “we’re now in one of the worst periods for Alberta in the past 40 years,” Heather Kirk, an analyst with BMO Capital Markets, said in a note.
“With a challenging economic environment as the backdrop, we expect continued operating challenges and are waiting for signals of a firming outlook before changing our views,” Kirk said.
The City of Calgary’s latest civic census showed almost 9,000 apartments, or 8.6 per cent of the total, were vacant in April. The apartment vacancy rate was by far the highest it has been in any of the past 16 years.
“We don’t think the market is strong enough for us at this point to significantly reduce incentives offered,” Geremia said, who expects incentives will be phased out and replaced with higher rents once market conditions improve.
Boardwalk has been attempting to take advantage of low interest rates with acquisitions of up to 1,000 new units by the end of the year, down from its earlier forecast that it would buy up to 1,200 apartments in 2016.
The company has acquired about 750 units so far, including 238 in Calgary’s southeast community of Auburn Landing.
Geremia said Boardwalk has recently been involved with deals in which apartment buildings were sold at a discount because the sellers were concerned about filling them.
“We know how to lease buildings up, and we know how to put the right customers in there,” he said.
During the second quarter, Boardwalk collected $110.4 million in rental revenue, down by nearly nine per cent from a year earlier, due in part to higher vacancies and financial incentives. Also contributing to the drop was the fact that the company sold its entire portfolio in Windsor, Ont. in 2015.
The company reported $2 million in uninsured losses as a result of the Fort McMurray wildfires, largely for offering evacuees free and, later, discounted rents.