Multi-family transaction data for the first half of the year point to a strong recovery for deal volume, driven by government-funded transactions by not-for-profits.
“Non-profit/government buyers were a huge factor in the market, responsible for 14 transactions totalling $268.8 million, including an unprecedented 50 per cent of the total dollar volume that traded hands in the suburbs,” said Ian Brackett, a broker with Goodman Commercial Inc. “Non-profit/government buyers were responsible for only two transactions in all of 2023, and four transactions in all of 2022. We have never seen the buyer profile shift so dramatically!”
Sales data collated and analyzed by Goodman Commercial indicates that the tally of 59 transactions in the first half of 2024 was up 59 per cent versus a year earlier, while the aggregate value of $890.3 million was up 69 per cent over the same period.
Sales activity has been split almost evenly between Vancouver and the suburbs this year. A year ago, Vancouver led in transaction activity.
However, the greater activity also meant a lower price per suite, thanks in part to many of the properties being older, lower-calibre assets picked up by not-for-profits.
While the number of suburban deals doubled to 31 from 16 a year ago, with units increasing in step, deal value increased just 29 per cent versus a 154 per cent increase in Vancouver.
This pushed the average price per suite down by 38 per cent to $325,379 while unit values in Vancouver rose 27 per cent to $551,638 – surpassing the average value of suburban transactions a year ago.
Brackett doesn’t expect the momentum to stop, either.
Some observers are holding their breath to see if investors hit pause after a wave of sales prior to changes to the capital gains tax taking effect in June. With further rate cuts on the horizon, some investors may opt to wait for more attractive financing rates.
Yet deal activity over the past two months suggests otherwise.
“In the City of Vancouver alone, we’ve already recorded over $200 million in transactions in the two months after our June 30 cut-off date, which is more than the five months from January-May,” Brackett said. “The push to get deals done in June was big, but the rest of the year may not be as sleepy as some might expect.”
Greg Ambrose, vice-president with CBRE Ltd. and part of the brokerage’s National Apartment Group based in ÎÚÑ»´«Ã½, shares that view.
“Rate cuts are going to bring some investor confidence back to the market and make some of the deals that were maybe a little offside at the higher rates start to make sense once again,” he said.
The momentum in the first half of the year promises to push total volume for 2024 closer to 2022 levels, he said, and not just in the Lower Mainland. Victoria deal-making is trending slightly ahead of last year, while Nanaimo has surpassed last year’s tally of three deals in the first half of this year with a total of four transactions completed.
“There’s a lot of capital on the sidelines, both private and institutional, and multi-family is definitely up there with the assets of choice right now,” Ambrose said. “The back half of the year could be just as busy if not busier than the front half.”
Demand from investors and lower interest rates should see cap rates start to move downwards, CBRE said in its mid-year report on the multi-family market, released last week.
“The fundamentals aren’t going away – the demand, the low vacancy and the pressure on the rents,” Ambrose said. “As we expect further rate cuts throughout the balance of the year, some of that cap rate expansion that we saw will probably get compressed back.”
CBRE reports cap rates for multi-family assets in Vancouver heading towards 3.5 per cent while in Victoria they'll approach 4 per cent.
Brackett agrees that some compression is possible. While cap rates inched up in the first half of the year, they’re very likely to follow interest rates down.
“The lower cost of borrowing money has already largely been baked into fixed-rate mortgages as bond yields have already come down,” Brackett said. “However, buyers are paying close attention to rate announcements so the impact could largely be psychological – as rates come down and activity increases, we could see cap rates start to come back down again.”
