As rent prices climb and vacancy rates remain consistently below the national average, the evolving rental market is poised to take center stage in Vancouver's real estate discussions throughout 2024. Join us as we break down the challenges and opportunities shaping the region's rental landscape, from scarcity to promising developments, and delve into the strategic solutions needed for a more accessible and thriving housing market.
The Persistent Challenge of Low Vacancy Rates
Metro Vancouver's vacancy rates have consistently remained below the national average, making it the region with the lowest vacancy rates among Canada's major metropolitan areas. Over the past decade, these rates have remained in restrictive territory, fluctuating between 0.5-1.5%. Vacancy levels at these rates can be attributed to natural rental friction: temporary vacancies as a result of tenant turnover, rather than lack of demand. The short-lived spike to 2.6% in 2020, due to the knock-on effect of the COVID-19 pandemic, quickly reverted to the sub-1.0% level that aligns with historical averages. In 2023, vacancy rates reached new lows of a 0.9% average with specific submarkets such as Coquitlam experiencing rates as low as 0.3%. These numbers underscore the acute scarcity of available rental units, driving up competition and costs for renters.
Escalating Rents and the Widening Gap
Metro Vancouver continues to be characterized by growing rents, with a widening gap between the prices of long-term leases and new turnover rentals. This trend disincentivizes mobility within the rental market. The Canadian Mortgage and Housing Corporation (CMHC) reported that in 2023, the median rent witnessed a significant 9.5% increase, a jump from the usual 2% to 8% growth observed in prior years. Areas such as Burnaby and Coquitlam saw annual increases of 10.7% and 12.7%, respectively. Contributing to this upward pressure are would-be homeowners, who, deterred by rising interest rates, are opting to rent, thus inflating demand and rents alike. While a decrease in interest rates may offer temporary relief, the fundamental issue of supply scarcity persists. Recent high immigration numbers further exacerbate the issues of the market.
A Glimpse of Hope in Recent Projects
The past three months have seen four purpose-built rental buildings begin their lease-up campaigns, contributing to a total of nine projects currently leasing in Metro Vancouver. Among these, a couple stand out for achieving high rental prices per square foot: Onni Group’s Richards and Pender in Downtown Vancouver seeing $5.80 rental price per square foot (RPPSQ), and PCI Group’s Yarrow in Vancouver East targeting $4.45 RPPSF. On average, these recent projects have taken about six months to reach stabilization. This represents an average absorption rate of 18% of all units within a development leased per month. For developments with over 100 units, this specifically represents an average absorption of 30 units per month. Submarkets such as Vancouver East and Vancouver West saw especially strong absorptions, taking on average just three to four months before achieving stabilization.
Purpose-Built Rentals in the Near Future
Looking forward, the Vancouver rental market is poised for a wave of new entries. We’re tracking 17 purpose-built rental developments expected to begin leasing in the next 12 to 18 months. The majority of these projects, 14 of the 17, are concentrated in Vancouver East and West, indicating a focused attempt to alleviate the housing crunch in these areas. Expected to begin leasing shortly is Aster by PCI Group, a sister project to Yarrow, and One33 / One53 by Three Shores. The Hyland by Rize Alliance and Minto is anticipated to follow shortly after. Richards & Pender represents the top-of-market rents in Downtown Vancouver and is being built by the reputable Onni Group. Lonsdale Square by Darwin and Minto, set to be the first building in a new master-planned community including a community centre complex, will soon come online in North Vancouver, alongside Victor by Cressey. A bit farther from the core is The Nelson by Wesgroup in New Westminster, impressive in its market due to its height and scale.
Our analysis reveals a complex and undoubtedly challenging landscape. Despite persistent low vacancy rates and escalating rents, we can look to the recent completion and lease-up of purpose-built rental projects, along with the anticipation of new developments, as a glimmer of hope. Addressing the pressing issue of supply scarcity requires strategic planning and policies with a focus on increasing the availability of rental units and making the market more accessible to all residents.
It has always been our mandate to supply essential resources for developers and industry participants as a step towards better solutions. For more rental market intelligence, visit the Newsfeed at MLACanada.com and keep an eye on your inbox for the newest Newswire emails.
