The new homes, condos and re-sales that are traditionally the focus of the Edmonton real estate market now have an additional market factor: rentals.
Edmonton’s real estate market has been heating up since the end of the spring lockdown and, added to the usual strategy of sales-to-listings ratios, forecasting supply and demand trends, Edmonton is tracking rental stats and investors are catching on to Edmonton rental properties as viable, long-term investments.
Patrick Francey and JG Francoeur are executives with the Real Estate Investment Network (REIN), respected as Canada’s most trusted real estate investment, education, analysis, research and strategic leadership resource.
“We’ve been very bullish on Edmonton for the past year,” Francey says. “Even before the pandemic hit, we started to see Alberta’s economy recover, offering great investment opportunities in real estate.”
Francoeur explains that the pandemic’s impact on the Edmonton rental market was marginal. “Like most of rental markets, once the dust settled from the initial lockdown reactions, Edmonton’s rental market was not really adversely impacted, and overall government stimulus programs such as CERB provided renter households with income needed to pay rent.”
According to the most recent (January 2021) CMHC Rental Market Report, slower rental demand due to weaker economic conditions and lower migration combined with higher rental supply resulted in an increase in the Edmonton rental vacancy rate. Despite the increase in the overall vacancy rate, there was no significant change in average rents.
Edmonton’s rental vacancy rate (for a two-bedroom rental) increased 7.4 per cent with an average monthly rent of $1,272.
CMHC economist Michael Mak explains that, “Vacancy rate increases are largely focused in central Edmonton, around the downtown core, as well as near the University of Alberta. But property operators have opted to compete with non-price measures such as free amenities and certain months of free rent. Over 90 per cent of recent primary rental growth is in the one- and two-bedroom units.”
REIN’s Francey underscores that, saying “In most markets, the key factors are the same: employment growth, supply and demand, tenant profile, property type, price point, region. This is what our research team focuses on. Purpose-built multifamily apartment style residential units in Edmonton continue to remain soft, with recent signs of improvement.”
Stats also show that market conditions continue to be tight in Edmonton’s condominium market. The condo vacancy rate decreased from 2.5 per cent in 2019 to 2 per cent in 2020, mostly due to the increase in demand for condominium apartment units resulting from consumer preferences in the Edmonton CMA.
The increase in condo demand is in spite of rents, that were on average, 11.3 per cent higher than those for purpose built rental apartments.
“Edmonton’s condo market is overbuilt and tenants have a lot of selection and options,” Francoeur adds. “On the supply side, investors are having to work harder and be innovative in general to keep maximize rents and keep units rented. Vacancy has stayed relatively consistent depending on property type. Rents were starting to come up pre-pandemic, and then flattened during the pandemic. For well-managed properties, many investors are seeing rents increase.”
Not for competitive stats and rankings but for the purpose of understanding the present and strategizing for future trends and possibilities, most real estate professionals reference and compare Edmonton with other markets.
“Ultimately jobs are the key factor,” Francey notes. “Employment attracts immigration or interprovincial migration, creating population growth and demand for rental units. Currently Edmonton’s unemployment remains high, particularly in the service sectors such as retail and restaurants, of which the demographic are commonly renters. We are still in the early innings of the restrictions loosening and it’s too early to say what the data will show by the end of the third quarter.”
Both Francoeur and Francey agree that Edmonton represents a significant value opportunity where buyers can get more for their dollar than in other markets. “In Edmonton and Calgary, both cities experienced a multi-year decline in real estate prices due to the downturn in the oil and gas economy,” Francey says.
“Calgary is recovering price-wise and has caught more attention from investors seeking to purchase single-family detached homes, townhomes, condominiums and duplexes at significantly less cost than in most parts of British Columbia and Ontario. The Edmonton rental market is not as far along as in Calgary,” he adds. “We look at what goes on in Calgary, and we see the future of what will go on with the market in Edmonton.”
At the moment, Edmonton offers slightly better opportunities as the average price of a home in the city is about $401,000 versus about $441,000 in Calgary, according Canadian Real Estate Association (CREA) figures.
Mak says “Edmonton, like Calgary, is largely affected by migration, both international and interprovincial, due to job prospects. A sizable student population were affected by pandemic restrictions. Employment in the energy sector continues to be a strong driver in the rental market, with ties to adjacent sectors like construction, engineering, and transports.”
Alberta’s energy situation impacts the Edmonton rental market. “Yes, oil and gas are still major sources of employment,” Francoeur points out, “but Alberta’s economy continues to show signs of shifting and cities like Edmonton are now less dependent on oil and gas compared to the past. Although the change is slow and momentum and employment prospects do remain connected to the energy sector, the tech industry and new business like the Amazon distribution center moving into Edmonton are very good news.”
The forecasting agrees that Edmonton is a positive prospect for rental properties and real estate investors. “Vacancy has stayed relatively consistent depending on property type. COVID has driven many renters to want and need more space,” Francey says. “Single family detached rental units and townhomes remain in-demand. The key is for these rental units to be updated, well maintained, and well managed.
“One of the most important components of any investor’s strategy is timing and timeline,” he cautions. “The longer your timeline, the less you need to worry about timing. Only those investors looking for short-term gains need to worry about perfect timing, but they should also be careful because they’re bordering on speculation.”
Like other common aspects of Edmonton’s real estate market, there are always unpredictable variables. Forecasts are difficult. “We expect lower vacancy rates into the fall,” Mak says. “With interprovincial travel resuming, and recommendations by the province of Alberta to resume in-person post-secondary classes, demand for rentals should come back. Average rents are expected to be stable and will not see any significant changes until vacancies reach pre-pandemic levels.”
Despite the business broadsides of the lockdowns, the outlook for Edmonton rentals is encouraging. “Edmonton – and Alberta overall – can position itself well for future business,” Francey adds with positivity. “The cost of business operation and the cost of living for staff is comparatively low in the Edmonton market and that should attract businesses looking to increase their bottom line. The work-from-home trend sets employees up to work in affordable cities with terrific lifestyle options, like Edmonton.”