Which Cities Have The Best Investments ?

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio.

[00:00:13] Welcome back, Real Estate enthusiasts to another exciting show. My name is Nick Hill. I'm joined every Tuesday in Friday by my dear friend and co-host Daniel Foch.

[00:00:22] Today, we are diving into a topic that is the very pulse of real estate investing. And that's Capriates.

[00:00:31] Imagine you're walking down a bustling street in downtown Toronto. You see towering skyscrapers, quaint boutiques and everything in between.

[00:00:39] Now here's the million dollar question. How do you know which of these properties is a good investment?

[00:00:45] Yes, the eternal question that keeps investors up at night. Well, folks, that's where the star of our show enters the capitalization rate or is we like to call it the Capriate.

[00:00:58] Think of Capriates as kind of like the fuel efficiency of a property. Just like you would measure a car's miles per gallon. It gives you a quick insight into the efficiency and potential running costs.

[00:01:08] It Capriates provides a snapshot of a property's financial performance.

[00:01:13] Okay, great analogy, Dan, as a guy that allows both cars and real estate. I'm here for it.

[00:01:18] But let's break it down a little further for our listeners. The Capriate is essentially the rate of return.

[00:01:22] You can expect on a real estate investment property.

[00:01:25] It is based on the income it's expected to generate. Now it's calculated by dividing the properties NOI, which is net operating income by its current market value.

[00:01:37] And today we're going to be looking at those Capriates across Canada on a city by city basis, including outlooks on Toronto, Montreal, Vancouver, Calgary, Edmonton, Ottawa, Winnipeg, Halifax, Victoria, Waterloo, Quebec City and Munkton.

[00:01:53] So I think we've covered most of the Canadian population there. So if you're not happy at the end of this episode, I'm sorry.

[00:01:58] And there's likely just no information on where you live.

[00:02:02] That's okay, see you.

[00:02:03] And I see that you know I'm misdoing these episodes. We haven't done, we've talked about Capriates a lot.

[00:02:08] We talked about them all the time, but we haven't done a full cap rate report since I don't know.

[00:02:12] Like last year, 2023.

[00:02:15] Yeah, I know. These are some of my favorite shows.

[00:02:17] Admittedly, I am a little bit upset that that lists excludes Saskatchewan, but I'm just going to have to call the guys at call yours and tell them we need a Saskatchewan update in this report.

[00:02:26] Why don't we just do it live when we're out there in a few weeks?

[00:02:28] Yeah, exactly.

[00:02:30] So to kick us off, let's quickly do our fresh air on what a cap rate is and why it's important for investors.

[00:02:35] Yeah, for sure. So Capriates for different cities can provide valuable insights into potential investment opportunities and years.

[00:02:43] How they can help you understand which cities might be better for investing in.

[00:02:50] The first piece is comparative analysis.

[00:02:52] So Capriates allow you to compare potential returns of properties across different cities.

[00:02:56] Just like they would allow you to compare properties side by side.

[00:02:59] So, you know, you're looking at two properties and maybe say this one's a six cap and this one's a 6.25.

[00:03:04] Higher cap rate generally indicates a potentially better return on investment.

[00:03:08] Next piece is risk assessment.

[00:03:11] So cities with higher cap rates often come with higher risks.

[00:03:15] Well, lower cap rates might indicate a more stable market overall.

[00:03:20] Now, this can help you balance your risk tolerance with your hopeful potential returns.

[00:03:28] By comparing cap rates over time, you can also identify trends in different cities.

[00:03:32] So rising cap rates might suggest increasing investment opportunities while falling cap rates are

[00:03:36] Capriate compression could indicate a matureing or saturating market.

[00:03:40] Now, Daniel mentioned compression.

[00:03:41] Let's also talk about yield compression.

[00:03:45] Capriates essentially represent the yield on a property investment.

[00:03:49] Now, cities with higher cap rates offer potentially higher yields, which could be more attractive for cash flow focused investors.

[00:03:59] And the final piece is market efficiency.

[00:04:01] Lower cap rates in certain cities might indicate a more competitive and efficient market while higher cap rates

[00:04:07] could suggest undervalued opportunities or less competition, which can also mean less liquidity if you're a seller or a harder market to sell it.

[00:04:15] Yeah, that's a great point.

[00:04:15] Okay, so now that we've had that refresher, let's do our deep dive into the call yours cap rate report for Q2 of 2024.

[00:04:25] So the summary on their website states that confident in rate cuts, strike confidence and rate cuts remains extremely strong,

[00:04:32] which we're seeing in our market as well.

[00:04:34] And buyers are unable to, you know, the limited buyers that are in the market are unable to find deals in their liking.

[00:04:39] Yeah, overall transaction volume is down 50% year to date for the first two quarters of 2024, although if we exclude a single mega deal from that calculation that took place in 2023.

[00:04:53] The decline is a bit more reasonable about 25% which which does align with other global trends we're seeing in the space.

[00:05:00] And favorable demographics have buoyed certain asset classes more than others, which benefits especially industrial and apartment.

[00:05:06] I guess that means floated.

[00:05:09] Yeah, like you know, boys.

[00:05:11] Yeah, yeah, yeah.

[00:05:12] Not like a boy that floats.

[00:05:14] No, I get it.

[00:05:14] Yeah, I know.

[00:05:15] The outlook for the cap rate is neutral for many assets.

[00:05:20] Now, as the market seems to have stabilizing some areas, but, you know, we're not seeing growth or decreasing in cap rates.

[00:05:29] Essentially, it's just neutral across the board.

[00:05:31] Yeah, so let's dive into paid one of the report right now under heading national investment trends, which expands a little bit on these key things that they just mentioned on the site.

[00:05:41] Okay, so the first piece here is the Canadian lenders and investors are strongly anticipating rate cuts with most expecting six to eight cuts by the end of 2025 this expectation slows transactions as sellers await better rates.

[00:05:58] And of course, buyers are waiting better rates to go and purchase those properties.

[00:06:03] And this is resulted in transaction volume being down 25% year-to-date again, excluding that mega deal portfolio deals as well are notably absent so far this year in 2024.

[00:06:16] Yeah, so it's kind of the same thing that we're seeing in the in the typical like small cap and residential market where because this is big assets that we're talking about where, you know, both buyers and sellers seem to be waiting.

[00:06:26] It sounds like sellers seem to be waiting, you know, hoping that when buyers trying to come in and capitalize on those lower rates, they might be able to get a better price.

[00:06:35] Demographics as mentioned are favoring certain assets, particularly industrial and apartment due to Canada's high population growth.

[00:06:42] And private buyers seem to be dominating has institutions are hesitating post pandemic. I think a lot of them are just trying to unwind their US office portfolio.

[00:06:50] Yeah, yeah.

[00:06:53] Now apartments remain an attractive investment due to guess what the housing short is here in Canada.

[00:07:01] And multifamily cap rates are 5% below 5% sorry in several major cities only exceeding 6% for a very specific asset class, which is low rise in the city of Calgary. Now despite CapEx needs high population growth and low construction.

[00:07:16] This all makes apartments quite appealing.

[00:07:20] Grocery anchored retail has become popular with cap rates now lower than regional malls in some markets like Halifax Vancouver Victoria and Toronto.

[00:07:28] And industrial properties have seen significant reprising the past two years.

[00:07:32] In the GTE rates have increased by 1.5% since Q2 of 2022 due to frequent transactions and industrial valuation adjustments have been swift with yields now approaching those.

[00:07:46] Of downtown office in some markets that is that is crazy if you told some commercial brokers that years ago they would have laughed at.

[00:07:54] Yeah suburban office cap rates now consistently range from 7.9% in most markets reflecting associated risks and a lot of the transactions in that space seem to be based on redevelopment potential with long term views considering that densification, rezoning and transit improvements which are hearing politicians talking a lot about.

[00:08:12] Yeah, and I mean it's something that we tell our investors on the small cap side to do as well right look at the property now and look at it 10 years from now right what is the future development potential what's the greatest upside of this property.

[00:08:24] Now the cap rate outlook is neutral for many assets that we discuss with market stabilization in several areas.

[00:08:31] Q3 predictions show no change for most markets in hotels industrial apartment and retail office remains the most negatively impacted with expectations of rising cap rates in some major markets.

[00:08:47] Then they included this really helpful section called trends to watch so let's just fire off the list of trends here.

[00:08:54] Yeah we're trendy guys who's better to go over this than us.

[00:08:57] First one is moderating inflation leading to further rate cuts by the bank of Canada.

[00:09:03] The next is interested to pull a capital from institutional investors however market is still dominated by private capital sounds like huge governmental attention is being paid to housing the form of new programs and initiatives but the question remains will it impact the supply side.

[00:09:22] And then they talk about the scaling back of a temporary immigration boom especially students which was actually announced recently so.

[00:09:30] Or I guess on the temporary foreign worker side so that was a good good prediction on their part because this this was their Q2 report so.

[00:09:37] And then of course it rounds off with something that we are no stranger to and that we have been preaching the good word of four years now on the show which is increasing the use of let's say non standard lending arrangements such as vendor takebacks to overcome some of the challenges of the high borrowing costs were seen right now.

[00:09:59] I love that non standard lending arrangements sounds like something you would get in the US and oh seven.

[00:10:04] Oh yeah I'm sure those a couple of those back then yeah so that's a great summary I appreciate it.

[00:10:10] Now I'm going to pivot to one of my top five favorite charts in Canadian real estate probably so page three of the report shows the that the national average cap rate.

[00:10:19] Is the highest it has ever been when measured relative to sorry not the highest the tightest it has ever been when measured relative to the candidate 10 year bond yields actually the lowest it's.

[00:10:30] It's just 2858 basis points above the candidate 10 year bond yield where it typically trades within a channel 400 to 500 basis points above the candidate 10 year bond yield.

[00:10:41] So then why is this happening and what does it mean I think you'll notice when when we go through this report if you look at multifamily cap rates across the country.

[00:10:49] Right now you'll you'll see their remarkably low and industrial is a little higher, but also low and those two asset classes telling important story that regular investors likely don't really think about.

[00:11:00] So tell me since you're the mortgage broker here what makes a multifamily asset unique in Canada well the thing with multifamily is you can get a little something called see mhc finance, which has the highest loan.

[00:11:13] The value the long sanitizations and the lowest rates on the market.

[00:11:18] So this is put upward pressure on prices since people can afford to pay more and similarly neck what makes industrial unique asset class in Canada.

[00:11:27] Yeah, so in industrial and commercial similar to the multifamily which is supported by cmc you can get high loan to value mortgages from BDC which is a similar entity to cmc but for businesses rather than for housing.

[00:11:43] And for context BDC is a crown corporation and national development bank wholly owned by the government of Canada mandated to help create and develop Canadian businesses through financing growth and transition capital venture capital and advisory services with a focus on small and medium sized enterprises that's from their website.

[00:12:02] Now if you go and Google BDC commercial real estate loans you can see on their web page that shows the following in nice big bold letters you can't miss it it says up to 100% financing get financing to cover project costs up to 25 years repay your loan up to 30 six months to have the principal payments postponed at the start of your loan so those are some pretty favorable terms I would say.

[00:12:29] Yeah, and from my perspective these government supported credit products are kind of keeping valuations high in certain asset classes not unlike the housing market where we have cmc finance mortgage sorry cmc and shared mortgages extended amortizations and mortgage relief that are kind of keeping the market propped up.

[00:12:46] The okay so now let's look at a city by city comparison on cap rate starting off with the center of the universe such a Tony Toronto over here.

[00:12:56] Okay better than a Danny Detroit I think it would be Danny Dallas alright fine I'm making New York then okay now that we've gone sufficiently off track.

[00:13:05] Q2 saw limited large transactions industrial and multifamily remain the top asset classes with grocery anchored retail offer also preferred obviously grocery stores and food kind of never go out of fashion here.

[00:13:20] Vendor take back mortgages continue to help people find financing which for other wise be very restrictive in today's day and age.

[00:13:31] Folks remember when we told you two years ago to learn how to use a vendor take back mortgage because it was going to become an important theme at some time in the future.

[00:13:41] Well that time is now and I think conveniently we're going to be doing our monthly free webinar on VTB's in October.

[00:13:47] That is correct in September we're doing one with a good friend of the show an absolute legend in the real estate space al-crim Devoni of round square we're going to do that on missing middle developments and then October you're right to stay tuned for that one's going to be on VTB's.

[00:14:03] And where would I go if I wanted to register for one of your free webinars Nick funny you ask you could head over to real estate see a register for our free community where the free webinars are hosted so there you go see it there.

[00:14:17] But let's get back to the report your damn we still have a lot to go through the capital gains inclusion rate increase in the bank of Canada's and the bank of Canada's first rate cut in June had a minimal immediate impact.

[00:14:28] But market participants seem to expect improvements with future rate cuts as rates come down.

[00:14:35] Okay so let's get into some of the nitty-gritty details here GTA industrial vacancy rose to 0.1% with lower asking rents total transactions at 1.77 billion dollars averaging 9.1 million largest deals were 445 miliner Avenue 60 million and.

[00:14:56] 2600 north park drive for a 110 million the office market had a few large transactions the notable sale being 25 doxide drive which was 232 million total volume was 516 million so that was basically half of it and this is where you see like you know they mentioned they carved out.

[00:15:17] That transaction from 2023 because yeah the mega deal because it can really skew volume.

[00:15:25] Yes, so is that the mega deal they were talking about no I don't know no because this is 24 data right the 23 but yes so 9.7 million per deal was the average.

[00:15:35] Now let's look at retail transactions they totaled about 618 million dollars some of the key transactions there were 1224 dundas treaties and Mrs. Saga 55 million.

[00:15:46] And then 257 Kingston road in Ajax on terio at about 25 million dollars as well.

[00:15:55] And finally multifamily demand remains strong due to limited supply and rental growth largest Q2 transactions 2000 shepherd have North York was 101 million and half of another deal in Scarborough for 52 million.

[00:16:10] Okay, some pretty cool transactions there big numbers but hit me with the summary on cap rates and Toronto.

[00:16:18] So Toronto cap rates are currently around the second lowest in the country office 5.75 to 6.75 for class a 6 to 7 for class b sub urban office 6.5 to 8.5 industrial 5% to 6.5 retail 5.5 to 6.5 and multifamily 3.75 to 4.75.

[00:16:39] Wow multifamily stands out there maybe we should be looking at investing in some other asset classes given how low those multifamily cap rates are.

[00:16:50] Yeah, I mean you could buy a commercial like flex condo for the same price as a duplex so it could make sense right it's definitely on my radar right now.

[00:17:00] Yeah, maybe we should have an episode on on that it is in the works okay good to know now let's move on to Montreal.

[00:17:08] So Montreal's industrial market stabilized in Q2 with stable prices but a decrease in sales so similar to what we're seeing in the residential market not a lot of people buying stuff right now.

[00:17:19] The leasing market is softening with increased vacancy rates now above 4% and that's allowing economy and reduced demand for warehousing seems to be the key factors there.

[00:17:27] Office market in Montreal seems to be stagnant with no real significant activity in the past six months we see high vacancy rates in the central business district and potential stabilization review by the end of 2025s and to be what they're predicting.

[00:17:44] And then redevelopment requires municipal support there so that might take some time.

[00:17:50] The retail sector seem to see steady sales volume in Q2 with activity in strip small strip centers and grocery anchored investments no upward pressure on cap rates by the sounds of it.

[00:18:03] Now let's talk about the multi family market is doing a Montreal most impacted by current interest rate increases higher borough and labor costs coupled with persistent inflation.

[00:18:14] It's causing developers to put projects on hold that is a similar story across the country and fixed in floating rate mortgage lovers are at highs not seen in recent year obviously making it very hard to get these projects done now.

[00:18:28] Dan give me a quick summary. He made with the cap rates for those markets.

[00:18:31] So Montreal cap rates office six to seven suburban office kind around the same range industrial five and a half to six and a half retail six to seven and multi family again four and a half to five percent.

[00:18:43] Again with the low cap rates on the multi families.

[00:18:47] Yeah, stuff happens when you give people 50 year emeralizations in 90 plus percent loan values I guess it does yeah the impact of CMHC fine and seen for.

[00:18:59] It's incredibly visible when you look at cap rates from multi family compared to other asset classes right I mean the numbers speak louder than than words now.

[00:19:07] Dan let's go all the way over to the west coast start tell me about Vancouver.

[00:19:13] Large transactions in greater Vancouver driven primarily by the increase in the capital gains tax to 67 percent inclusion rate after June 25 so it seems like a lot of people were actually trying rushing to get deals done before that which was a big theme actually.

[00:19:27] Now hit me with the cap rates here, Vicky Vancouver but my name is Nick not Vicky okay then Nicky Northman.

[00:19:36] I don't live there I lived in Kitselano but.

[00:19:40] Okay well anyway the cap rates at least I don't know anything about Vancouver.

[00:19:45] Vancouver cap rates downtown office 5.25 to 6.5 suburban office there's they're not much different there 5.5 to 6.75 industrial for 75 to 575 retail 5 to 65 and multi family around you know at the bottom list again at 3.75 to 5 I know really the bottom yeah okay so let's jump over to a market that is still running a hot year in Canada.

[00:20:12] Calgary Dan hit me with what's trending there from the report.

[00:20:19] Yes on the multifamily side investors seem to be looking for good quality assets with value add and rental upside opportunity obviously we know a lot of people listeners to the show people we met at the real estate rodeo during Calgary.

[00:20:31] The multiplex projects using CMA CML is select and I know Calgary basically just up zone the entire city to so I thought it was forplexes but it's actually you can do fourplexes with 80 years so you can do like four five it's like a townhouse block basically with four units below it so it's eight yeah.

[00:20:49] Yeah and spreads between going in yields and stabilized yields remain elevated so you can still capture a lot of upside by stabilizing an asset or doing an ad value which is not something you see in a lot of these other markets.

[00:21:03] Yeah not very cool okay Calgary industrial vacancy still remains tight over there concerts acquisition of rocky view business park is is the most notable investment sale of Q1 this year.

[00:21:15] And Calgary office I mean this is an interesting one but values of reach a relative bottom for office properties limited sales activity presits however investors are seeing opportunity and well position B class assets which makes you wonder if it has to do with that residential conversion stuff.

[00:21:32] Yeah that isn't just I know that Calgary's kind of led the charge on a lot of those projects and actually completed someone we do have an episode in the works on on office to res conversion so stay tuned for that.

[00:21:42] But let's finish this off and talk about retail limited retail sales in Q1 and the retail cap rates are kind of expected to track alongside bond yields.

[00:21:54] And we'll quickly go through their cap rates office is big range six and a half to nine and a half now remember Calgary has six million square feet of office that's being converted to residential as we mentioned so.

[00:22:04] And they also have some of the highest office vacancy in the country so I mean like triple a stuff is fine but then some of the B and C is not doing as well.

[00:22:11] Well even some of the triple A when we were there like we're walking around downtown and there was way too many vacancies and like the downtown core and nice buildings.

[00:22:19] Yeah I guess we'll see like how because I know it's the fastest it's like Alberta's the fastest state growing state on earth right now so see if it on the wall pops it up.

[00:22:27] Yeah industrial five and a half to seven and a half retail about the same multi families four point seven five to six and a half so big spread on that as well.

[00:22:35] So industrial retail and multi family market still the strong performance driven by high demand and positive absorption leading to declining or stable vacancy rates cap rates have stabilized after previous increases.

[00:22:52] Okay now let's look at just had a little bit north over to Edmonton where it seems the office market is pretty much flat very similar to what's happening in Calgary but Capriates is kind of stabilized maybe a little bit elevated.

[00:23:09] Yeah and the hotel market activity has returned to pre pandemic levels with improved credit conditions helping achieve normalized revenues.

[00:23:19] Increase sales are actively and activity are anticipated in the latter half of this year probably all hotel revenues are good from Ontario people going out there by houses and investment properties because they can it's only placed they can afford it so.

[00:23:33] Equiply Edmonton's cap rates office is seven and nine and a half so comparable to Calgary industrial six to seven retail six and six point two five to seven and a half.

[00:23:42] And multi family four point two five to five point seven five so yeah I mean pretty standard comparable to Calgary I would say.

[00:23:51] Let's head east back over to the capital Canada Dan sure so rising financing costs and high construction expenses seem to be hindering new large scale development projects in Ottawa.

[00:24:03] Land values drop significantly from their 22 peaks. I mean, I think even if you look at the residential market like some of the pre cons that were selling in Ottawa that how much those values came off was like just massive right like 30 40% drop so there's a big gap between developer offers and all your expectations I think.

[00:24:22] Yeah, I mean the stories is the same across the country rate office markets there's actually an increasing interest from from a local investors due to more employees returning to office higher cap rates are

[00:24:33] And there's growing interest in office to residential conversions as developers anticipate potential city support the multi family market stabilizing after years of strong growth.

[00:24:45] And rental rates have leveled off with more tenant choices and increased incentives least up times of length and but demand for affordable housing remains strong.

[00:24:56] Now, and in the industrial and retail space, both sectors seem to be thriving industrial rental rate growth has plateaued but demand and low vacancy rates persist.

[00:25:07] The retail sector, particularly in suburban areas also remains strong with rising rental rates driven by new retailers entering the market despite limited transaction activities.

[00:25:20] That's a good sign.

[00:25:21] It is worth maybe naming the the retailers that were entering the market.

[00:25:25] It says entry of new retailers such as crumble cookies and Chick-fil-A has driven retail rates upward due to a limited new retail construction in the past.

[00:25:34] Wow, are you telling me that Chick-fil-A can impact an entire asset class on their own?

[00:25:40] I guess I don't know there's a Chick-fil-A opening near me a new market actually so I'm excited to go there.

[00:25:46] Careful now you can cancel for that.

[00:25:48] Can you actually get canceled for Chick-fil-A?

[00:25:50] I don't know. I think they were like canceled like 12 years ago for being, I don't know, two right wing and now they're they've gone the other side and they're being called woke by the right wing.

[00:25:59] I don't keep up.

[00:26:00] I'm so glad I understand any of this stuff I can't keep up.

[00:26:04] Any more are you there?

[00:26:06] Yeah, so it sounds like it bounces out now and you're probably safe to go enjoy some delicious chicken sandwiches.

[00:26:12] Perfect.

[00:26:13] And while I'm doing that I will talk about cap rate.

[00:26:17] So, let's take a look at the issue.

[00:26:20] Okay, so auto we'll start with the office.

[00:26:22] We're looking at about 6.5 to 8.5 which is interesting that auto has a lower vacancy rate than Calgary.

[00:26:28] But fewer people returning to office because most government plays and our less employed by oil and gas.

[00:26:36] Now, if we look at industrial or somewhere between 6 and 7 and a quarter retail, 6 and a quarter to 7 and a quarter again, brought to you by Chick-fil-A.

[00:26:45] Thank you.

[00:26:46] And multi-family 4 to 5.25.

[00:26:50] So again, multi-family rounding at the bottom of that list.

[00:26:54] Yeah, seeing a multi-family at 4% outside of your trauma and Vancouver is pretty wild.

[00:27:00] I guess auto-wide does work for affordable CMH.

[00:27:02] You find it's an anti-family because their incomes are so high relative to rents and CMHC affordable is based on the percentage of rent or income.

[00:27:11] Yeah, everyone makes 105,000 or whatever the cap for government plays isn't.

[00:27:16] And that definitely skews the median income because I'm almost positive the median income is from around 67,000.

[00:27:24] So yeah, so auto-wide decent amount higher.

[00:27:27] Yeah, auto-wide doing well, yeah, like from an income to rent perspective.

[00:27:31] Now let's move to another cold city which there's no shortage of in Canada.

[00:27:35] So that joke doesn't even really work well.

[00:27:37] No but this is pretty funny winter peg.

[00:27:39] I don't know if I remember.

[00:27:40] Have you ever had that?

[00:27:41] And that was in Winnipeg in the winter and it was funny because it was cold there.

[00:27:46] You guys loved Winnipeg today.

[00:27:48] We had a good time.

[00:27:49] We didn't, not as many deals as we thought come out of that trip but we had a good time there and it was funny.

[00:27:55] We went to the middle of winter and everyone was calling us crazy for going.

[00:27:59] But we actually caught some nice weather though.

[00:28:01] We tend to bring the heat down.

[00:28:02] You and I were in Calgary last winter and we caught a couple of really nice days.

[00:28:05] Anyways, back to winter peg cap rates.

[00:28:08] Office cap rates between six and a half and eight and a half percent industrial lower than that.

[00:28:15] We start with six and kind of cap out at 7.25.

[00:28:18] Retail six and a half to seven and a half.

[00:28:20] And again multi-family the lowest between five and six.

[00:28:26] So you know the retail market cap rates are slightly decreasing based off a few conditional sales that are nearing closure.

[00:28:32] And the office transaction volume was kind of low.

[00:28:36] So it was tough to even see if they've changed since the last month since there wasn't really much happening in that sector.

[00:28:43] The industrial market is experiencing strong demand and low vacancy rates persist with early 2024 examples indicating a slight decrease in cap rates.

[00:28:55] And then multi-family caps are steady and they mentioned in the report driven by CMHC financing with most buildings in the five point.

[00:29:02] Oh, to five point five percent range and we know as a rule you know that we talked about this a lot in the course as well.

[00:29:09] Typically easy to buy if your cap rate is higher than your financing rate and CMHC morti is are in the force.

[00:29:15] So for those ML islec deals so make sense why cap rates are kind of low like that.

[00:29:19] Yeah for sure.

[00:29:20] And on that note, we've got a few realist. See course members that are looking at winter peg or currently investing in winter peg.

[00:29:27] And I've got to say it's definitely a market that is worth watching and one that I have been actively watching recently as well.

[00:29:34] For sure. Okay, now let's take a long flight to Halifax.

[00:29:37] Most investors remain on the sidelines in Q2 2024 awaiting interest rate cuts as they say in the report which came late in the quarter.

[00:29:46] And they're obviously expecting further but the impact of the 25 25 basis points hasn't really been realized yet they're saying.

[00:29:55] Yeah, and Halifax's office sector remains challenged with downtown CBD's lagging behind suburban areas and occupancy vacancy rates are trending downwards with modest rank growth and some positive absorption.

[00:30:10] So that's good.

[00:30:11] But limited new supply and residential conversions are expected to gradually fill good quality space but that market still has its fair share of difficulties.

[00:30:22] On the industrial side vacancies spike due to some new openings in burn side and bears lake with significant new construction in the pipeline despite this rents for the existing spaces especially older stock or continuing to rise.

[00:30:36] Investor activity sounds like it's slow with a lot of the industrial supply under portfolio management.

[00:30:43] Now on to retail we see high demand for a grocery and pharmacy anchored properties.

[00:30:49] Smaller retail deals are focused on new construction in suburban areas attracting interest from both outside investors who are seeking favorable returns.

[00:30:59] And multi-family again, same story coast to coast but smaller investors are increasingly targeting older multi-family properties and Halifax and we know we've heard a lot about people doing this where there especially good for that CMHC program the energy efficiency program where you can buy an existing building and increase the energy efficiency by 40% and then.

[00:31:18] I guess that would give you the similar loan to value and as M.I.Select especially because like everything over there is all on oil furnaces and so converting from an oil furnace to a heat pump gave people a big boost in energy efficiency.

[00:31:36] So for small cap it was great larger reeds and firms seem to be cautious still with record construction rent growth continuing and high housing demand and so tough, tough market to kind of time and entry into.

[00:31:49] Yeah for sure so let's take a quick run through of the asset classes and their cap rates in Halifax.

[00:31:57] For office we're looking between 7 and 9 in Dasha we're looking between 6 and 8 retail 6 and a quarter to 8.5 and then he can multi-family around the net the bottom list of 4.5 to 6% for multi-family cap rates in Halifax.

[00:32:15] Okay now let's head to the only place with multi-family cap rates as low as Vancouver is a cornwall definitely not but it's Victoria B.

[00:32:24] Yeah and now that makes sense if there's one big thing BC does well it's over price real estate.

[00:32:30] That is true so multi-family cap rates are 3.5 to 4.75% in Victoria the same as Vancouver.

[00:32:37] Well office office office vacancy is on the rise and office caps are still in that kind of 6% range.

[00:32:46] Yeah and industrial seems to be strong although they are saying in the report that traditionally low vacancy has been offset by the completion of a couple of major projects including the Pacific Ridge Business Center and Inter-Earbin Cornerstone and Wildcat Industrial which is sweet name.

[00:33:04] Adding to the much added much needed space to the region.

[00:33:07] Now let's head back over to Waterloo and Teri you know if we were actually taking a flight around here this year.

[00:33:14] We're so expensive.

[00:33:16] It's a politicians flight home.

[00:33:18] We need a private jet for these kind of flights.

[00:33:21] Waterloo and Teri will please.

[00:33:23] As city whose greatest export is engineering graduates for your silicon valve.

[00:33:30] So office caps they obviously have a pretty booming tech sector.

[00:33:35] I would imagine they're keeping quite a few of those in the home grads as well.

[00:33:39] Office caps 6 to 7% range it's obviously an interesting office market there you have like your Google and all of these tech companies which we're already kind of forward thinking on the work from home space.

[00:33:51] So that's been kind of a fascinating one and it sounds like a lot of end users actually dominate the office market so there you know it's like, maybe I don't know if Google would own their office space but you know some users like that.

[00:34:04] They might be one of them yeah I know they did buy the.

[00:34:09] The giant like cruise ship size building in Chelsea in Manhattan.

[00:34:13] Yeah, like two billion for something insane like that so I mean little shack and water loose shouldn't be too much of an issue then yeah.

[00:34:21] So let's look at the waterloo industrial sector.

[00:34:26] Unfortunately they're starting to see that industrial market even slow there the fundamentals are showing signs of weakening with new buildings causing vacancy rates to drift up and rental rates to plateau.

[00:34:38] So this is causing uncertainty for local investors when underwriting lease renewal rates and probabilities for the sale of one of those properties.

[00:34:47] So we're also starting to see some businesses hit an affordability cap for industrial rents and that's just showing up in lower velocity of leases and user sales.

[00:34:59] Yeah, I got to hand it to to the author of water loose report they're probably the only not I wouldn't even call it bearish but it seemed to be a pretty realistic report not as optimistic as everyone else and that's those quotes actually the one that you just read comes from Carl in and in that call yours.

[00:35:15] So these are all different written by different like local market experts and Carl actually talking about the Google building it's interesting because he helped organize a tour for us when I was at the University of Gualph.

[00:35:27] So tour that building while it was under construction for the my University students association when that was first converted there so anyway, I'm able to cap rates in waterloo.

[00:35:36] Yeah, for sure.

[00:35:37] So industrial five five to seven retail we're looking at five five to seven five and multi family.

[00:35:45] Oh man three point seven five to four point seven five.

[00:35:49] Yeah, so many shows the amazing reports like hey look like you can give away a few months but maybe just like I mean to be fair multi families always been significantly lower than everything else.

[00:35:59] But like not that much lower like it makes you wonder if the spread will correct and anyway let's hop over to Quebec and Quebec City right now we've already been in Quebec for a month real now we're taking the flight back to water level.

[00:36:14] Back to the fact back the Quebec okay so let's start with the Quebec industrial market where stability may be wavering due to interest rate high exponentially leading to slight increases in cap rates despite low vacancy.

[00:36:31] Cap rates for the industrial market in Quebec or somewhere between five five and seven percent.

[00:36:37] Yeah, I will say that this one's pretty realistic as well multi family market low vacancy rates persist keeping pressure on rental prices Q to 2024 transaction activity.

[00:36:49] Could clarify how financing challenges are affecting the market after the slowdown that was seen in 2023 so good insight actually.

[00:36:57] Yeah, you know it's cool.

[00:37:07] So he's actually out he was tuned in live yesterday out shopping for deals and Quebec City right now and it says.

[00:37:14] There is multi family the multi family is looking at there is very excited has been looking at you know six to ten unit buildings for anywhere from one to two million dollars and.

[00:37:23] By what he's telling us they all look great and it's hard not to get obsessed with some of their heritage character and charm that you see in some of those buildings and some of those neighborhoods.

[00:37:31] Yeah, I mean I think I said like early COVID or even before COVID that like when we were seeing inflation values everywhere else.

[00:37:38] I was like because Quebec was all Quebec city was always rated like one of the best cities from millennials to live in it's got like huge tourism and hospitality community.

[00:37:45] It's fun there.

[00:37:46] Yeah, it's like the best millennial city.

[00:37:48] I mean I would assume that that would not change that much for Gen Z and they seem to be doing all kinds of cool stuff like pulling their socks up and inventing new slang so.

[00:37:57] I put my socks up now just to look younger.

[00:37:59] Yeah, I had I had two socks on the other day and I said to stuff I was like can I just wear them like this like is this like how you that's that's the thing right so.

[00:38:06] But yeah anyway if you're looking to invest in multi family and Quebec because I like I honestly that's one of a few markets and Canada that I'm actually bullish on like not that I think that any markets are but it but it.

[00:38:16] Quebec and Quebec City and Quebec as a province and and Saskatchewan really stand out to me just because I think that they're not as if they're not as competitive.

[00:38:24] I mean, I think that's a lot of things I've placed to buy.

[00:38:26] Yeah, give us a show because we'd love to connect you with Cam we'd love to connect listeners and so if you're interested in investing in multi family and Quebec give us a show.

[00:38:33] Yeah, I mean or just join realist.ca so you can see Cam and and all the other people doing deals across the country and our weekly calls and deal reviews.

[00:38:42] And you can do that with over 93 other members and counting very excited as to how the course the community has turned out.

[00:38:49] Yeah, for sure. Another another member George bought a triplex I believe in in Montreal so lots of lots of good stuff.

[00:38:57] Man, there's a deal that's happening country and there's great deals happening Quebec so let's hop over to munked in or final stop of the journey here.

[00:39:06] No actually I think there's one more is it is munked in last one.

[00:39:09] No, I don't think it is.

[00:39:11] They don't have the cap rates for industrial or for office sorry because I guess there's just not a big enough market probably no transactions but industrial and retail seems to be in that 7 to 8% range and then multi family naturally is going to be significantly lower than that 4.75 to 6% as this tradition.

[00:39:27] Thank you to see a magey for keeping it there.

[00:39:30] And actually that does wrap up our world wind tour of cap rates across Canada in probably the most uneconomical flight path possible.

[00:39:41] So as you can see though these rates vary significantly from city to city and a course between the different asset classes too which which are you know an industrial commercial and retail are drastically different products for sure.

[00:39:57] So now you might be wondering why we went through all the trouble of giving you all of this information while the average cap rates from my perspective serve as a invaluable baseline for investors so when you're looking for a potential deal.

[00:40:10] You can compare its cap rate to those averages for the asset classes that you might be buying that deal in and this comparison gives you a quick sense of whether the deal is priced competitively for its market and for its asset class.

[00:40:20] Now if you can remember one thing remember that a higher cap rate generally indicates a potentially better return but it often comes with higher risk.

[00:40:31] Whereas lower cap rates might mean lower risk but also lower potential returns the key here is understanding what's typical for that specific market property type that you're considering.

[00:40:43] Yeah you should probably come up with like a Nikela original like high risk high return low risk low return or something like that.

[00:40:50] That's too groundbreaking yeah.

[00:40:53] Obviously cap rates are just one piece of the puzzle when you're investing in real estate so.

[00:40:59] I would say there's I think it's it's probably probably the metric I use the most commonly but it's not necessarily the easiest to calculate right so.

[00:41:08] You and I are pretty passionate about educating investors on how to calculate these metrics and other ones effectively so if you want to dive deeper on this and learn other crucial real estate metrics we.

[00:41:19] Have you covered we certainly do we actually built out an offer what we've coined the free five day challenge which is again available real estate see where we teach you how to not only calculate cap rates but.

[00:41:33] Other essential skills for real estate investing is the great way to build your foundation and start analyzing deals like a pro yeah I mean we just did that episode analysis process and it's like.

[00:41:43] One of the biggest ways to do it is like analyze so many deals to the point where you just hated it and.

[00:41:50] You know what I mean and you just don't want to do it anymore see like okay I'm unparallized because now I just have to buy something because I don't want to look at another thousand once once you've hit that point where like I can't do this anymore start making off.

[00:42:01] And on that note on the on the free community we will be we took a break for the summer for the free webinars but we will be resuming our monthly free webinars and September starting with a missing middle webinar with outcream to Bonnie from rounds square.

[00:42:14] Thank you for tuning in for another episode and keep just crunching those numbers and we will see you next time.

[00:42:20] The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice Nick Hill is a mortgage agent with premier mortgage center and a partner in the G and each mortgage group.

[00:42:34] Licent number one zero three one seven agent license M two one as zero zero four zero three seven.

[00:42:43] Dino photos are real estate broker licensed with rare real estate a member of the Canadian real estate association the Toronto real estate board and the Ontario real estate association.