The pace of rental apartment rate increases appears to be slowing, according to new data backed up by the latest earnings results from InterRent REIT.
Asking rents for all residential property types in Canada were up 5.9% from a year earlier to a monthly average of $2,201 in July, but the increase was the slowest annual rate increase in 31 months, according to Rentals.ca and Urbanation's latest National Rent Report.
"As we move past the peak of summer, we've seen very little of the uplift typically expected with the warmer months," said David Aizikov, senior analyst at Rentals.ca, in a published commentary. "However, as the weather cools and days become shorter, rental demand typically slows which may further slow market rent growth."
Brad Cutsey, the chief executive of Ottawa-based Interrent Real Estate Investment Trust, which has a portfolio of about 13,000 suites, said he still sees rental increases above the rate of inflation but told analysts double-digit percentage annual increases may be over.
"The pace of rent growth is starting to moderate and maybe peaked a couple of quarters ago," said Cutsey on a call with analysts. "It is important to keep in mind that household formation still outstrips new supply being delivered by a wide margin. We will continue to see market pressure on market rents. It might not be at the double-digit (rate) we have been accustomed to over the last eight quarters. A range of 5% to 7% is more reasonable."
For the quarter ended June 30, InterRent reported occupancy of 96.2%, up 80 basis points from a year earlier. Driven by rental increases on new leases and renewals, the REIT saw its average monthly rent increase by 6.8% for the same property portfolio compared to a year earlier.
Mark Rothschild, an analyst with Canaccord Genuity, noted that fundamentals remain strong in multifamily, and while the pace of market rent growth has moderated, InterRent management noted that the gap between in-place and market rents is 30%.
"Rental housing fundamentals in InterRent's core markets remain strong as robust demand and limited new supply has resulted in consistent rent growth. Though rent control limits the ability to fully capture this spread immediately, rental rates have increased materially on turnover and leasing spreads," said the analyst in a note.
InterRent isn't ruling out transactions, but Cutsey said volatility in the capital markets decreases the chances of deals.
"Given the nature of the direct property market and the illiquidity of that type of asset, the volatility in the capital markets doesn't bode for active transactions," said Cutsey. "You need things to stabilize out."
The Rentals.ca survey found that price increases have nearly peaked in Canada's two most expensive markets.
Vancouver's July asking rents were $3,101, down 7.2% from a year earlier, though up 1.9% from June. In Toronto, rents edged up 0.2% monthly but were down 4.6% from a year ago, at $2,719.
Edmonton had the highest annual rent growth in Canada's largest markets, up 14.3% to an average rent of $1,579. Calgary rents rose 3.7% to an average of $2,111, though Alberta's largest city continues to show slowing annual rent growth, with July's results the lowest recorded annual pace in over two years, Rentals.ca said.