Rental Market Update

The fall CMHC fall report isn't due out until next month, but last week I was leafing through some old Boardwalk financial reports (or whatever the digital equivalent to 'leafing' is, scrolling I guess), and found some info that could be of interest to you all. Unfortunately they seem to change just how and what they include in their reports when it comes to the non-financial statement stuff, but I've been able to scrape together some good data.

For those unfamiliar with them, they are a major player in rental market here in Alberta as well as Saskatchewan, and are expanding into other markets throughout the country. According to their reports, they have just over 20% market share in Edmonton, and just under 15% in Calgary. Anywho, on with the show, lets start with vacancy rates...

Here is a look at Boardwalks internal data on Edmonton and Calgary (currently they have 12,144 units in Edmonton, and 5,227 in Calgary). It's kind of erratic, but we can see that the rate dipped well below their long-term averages in both cities from mid-'05 through the end of '07.

Since then though they've generally been above the averages, particularly in Edmonton, but as of their most recent reporting (3Q-'09) they have returned to the mean. It would be interesting to compare these figures to the CMHC numbers, but that will have to wait. Maybe in a coming week, or maybe when the CMHC report comes out next month.

Now lets add rents to the mix. Unfortunately they've only reported market specific rents going back to about 2006, but beggars can't be choosers I guess. I believe 'Market Rent' is their average advertised rents for new move-in's, while 'Occupied Rent' is the average of exactly what their tenants are paying. The occupied rent would be far more sticky, as leases are grandfathered in, and increases/decreases are phased in over time.

Seems the two figures were very close through the end of '05, then market rent started to take off in a big way and didn't top out until mid-'07... no coincidence, that's the exact same timeline and behaviour the resale market exhibited during that period. Occupied rents continued growing through mid-'08, as the company were phasing in increases on those that previously enjoyed lower lease rents.

Market and occupied rents met again in late-'08, and have both been tracking down since. Just as it rose faster, market rents are falling faster, now down $218 or 17% from peak. Occupied rents conversely down $30, or 2.6% from its peak. So, anyone living in a Boardwalk community might want to drop down to the office and get yourself a little reduction... if you've been a good tenant, you can probably leverage yourself a deal a fair bit better then even advertised.

Now we'll look at Edmonton and Calgary individually, lets start with the capital. Remembering their long-term average vacancy for Edmonton was 4.56%, we can see during the period where vacancies were below that mark, market rents were rising rather quickly... then when vacancies jumped above it, just as suddenly, rents started dropping. The rents have a pattern very similar to that of Alberta as a whole as we looked at earlier. That's no surprise though as Edmonton accounts for over 60% of their provincial portfolio.

Now onto Cowtown. This graph looks a little different, as it seems Calgary's vacancy rates were lower earlier, and we kind of missed their big decoupling of market and occupied rents. Their market rents kind of plateaued even though vacancies were still well below their long-term average of 4.85%. Perhaps they hit a ceiling, or maybe they could have went higher.

In any case, once the long-term average was broached, rents started to fall... then vacancies fell back below and rents went back up... then vacancies went back up and rents resumed falling. That long-term average might be an important figure in light of such negative correlation with rents, though vacancies have again dropped below that mark and yet rents are still trending down.

It'll be interesting to compare these figures with those in the CMHC release next month, as it seems, at least in the case of Boardwalk, things have stabilized. Vacancies are back in their normal range, but rents are still going down slowly but steadily.

Just wanted to throw this in cause it's an interesting little graphic they like to include in all their reports. This one is from their most recent report, released last Friday. It's quite intuitive when you think about it, and it's interesting to note the position of the markets.

According to their little graph it seems those in Edmonton and Calgary can await a move toward increased incentives, and then rent decreases. Having tracked some of their building rates on their website, it appears consistent, as over the summer rents have been fairly stable, but the advertising of incentives have been much more prominent.

They have sporadically included incentive figures in their reports up until '06, but I hadn't seen it since then, until their most recent report. For what it's worth, in 2Q of '06 they were offering about $15 per unit in incentives... in 3Q of '09 it was now at $145 per unit.

Quite the increase, but it should be noted that in 2Q '06 that was right in the midst of the big run up in rents (at least here in Alberta, which makes up over half of their portfolio)... conversely now we're in a period of higher vacancies and thus they're trying to lure people in, whereas in '06 they were practically beating them off with a stick (get your head out of the gutter!).

I'll do some more digging into their reports and see what I can dig up, but I figured this was a pretty good update for now. Hope your Monday is going well, tak'er easy guys!