Avenue Living finds success in multi-family housing and self-storage sectors amid national shifts
This article was produced in partnership with Avenue Living.
While much of the Canadian housing market flashes red, Avenue Living hit the green light as a company focused in the middle of Canada. Compared to real estate markets in the GTA and Vancouver that are slowing to a crawl, investors are seeking solace in the stability of the Prairies.
A unique confluence of factors is reshaping the dynamics of real estate within Canada, particularly in the multi-family and self-storage sectors. In a conversation with WP, Avenue Living’s Chief Investment Officer, Jason Jogia and Senior Vice President, Capital Markets – Equity and Research, Gabriel Millard discussed their strategies to navigate potential challenges in real estate sectors, and their focus for growth in 2024.
The Prairie advantage
Jogia compares the Prairies real estate landscape to a “perfect storm” created by a considerable supply constraint, soaring home ownership costs, and significant inbound migration. These factors suggest a continuing robust demand for multi-family housing and self-storage.
Despite the challenging environment marked by inflation and rising operation costs, Jogia stressed the industry's responsibility to provide quality, affordable housing. He underscores the importance of operating efficiency in this inflationary context, advocating for responsible rent practices.
“Geographically, our multi-family properties are spread across the Prairie provinces, including areas like Calgary and Edmonton, where we offer some of the most affordable rents in Canada. As new Canadians arrive in large numbers, seeking places beyond just Toronto and Vancouver to put down roots, the inbound migration creates a favourable market environment. It’s something we saw in 2023 and we predict will continue,” says Jogia.
As the company moves into 2024, affordability will be a key factor in the housing market. “Canada continues to grapple with the need for more housing options, and we want to be part of the solution. Our focus at Avenue Living is to preserve and upgrade existing stock so that we can create both a cost- and time-effective strategy to deliver quality housing to Canadians,” Jogia says. “With the price of construction at an all-time high, the rental rates needed to support these new projects are significantly higher, especially in cities like Toronto and Vancouver.”
He further elaborates, “We focus on workforce housing, where rent typically doesn't exceed 30% of a consumer's income. This approach allows us to maintain affordability without needing to upscale our properties to the point they're unattainable for the average Canadian. Our position in the middle of the spectrum, between subsidized, affordable housing, and high-end rentals, puts us in a strong position.”
Self-Storage: A thriving sector amid turbulence
Similarly, the current market is also fueling demand for their self-storage assets. Millard provides insights into the sector, describing it as a blend of real estate and an operational business. With Western society's tendency to accumulate goods paired with the rising costs of housing per square footage, he anticipates a sustained need for self-storage facilities.
He says, “On the real estate side of self-storage, it's driven by supply and demand fundamentals. In Canada and the U.S., we're seeing a significant demand influx and, depending on the region, some supply constraints. Despite a decade of industry development, it's been concentrated in specific areas, and current interest rates pose challenges for some operators.
“Operationally, the self-storage business thrives on volatility, which has been high since 2020, fueling the growth of the industry.”
Millard observes that the self-storage benefits from fluctuations in the housing market. Even in slower periods, as seen recently in the U.S., the sector has shown resilience and growth potential.
Jogia also points out the transformative role of technology in the industry. The advent of tech solutions has revolutionized operations, enabling efficient management of large portfolios and enhancing the customer experience through tech-enabled facilities.
Future growth: adapting to economic challenges with dynamism
Jogia stresses Avenue Living's dynamic approach to managing the real estate sector's challenges. He details how the company saw rising costs on the horizon and proactively responded to the inflationary and interest rate environment of the past years by securing fixed-rate contracts and adjusting rents within affordability constraints. This anticipatory strategy, he explains, allowed Avenue Living to post record margins in 2023 and positioned it to better withstand potential economic downturns.
Avenue Living has also sharpened its focus on operations and active management, aiming to provide increased value to its residents in the face of rising costs. By investing in capital improvements, technology, and employee training, the company is able to deliver a consistent and positive experience to its residents and customers.
Millard highlights that despite challenges such as high interest rates and headwinds in the form of inflation, “We believe there’s a lot of room to run with both our markets and investment products. The Prairie regions have not seen significant value gains for nearly a decade, but there's considerable room for growth as we align our pricing more closely with the rest of the Canadian market.”
Millard further explains, “In the private sector, we tend to be less influenced by public market sentiments, such as speculations on interest rate cuts. Our focus is on what we can control, and for us, it’s how we operate and manage our assets. We secure long-term contracts for stability and operate with short-term lease durations in multi-family and self-storage. This approach provides flexibility to adjust to economic changes in real-time. For instance, if we have an average mortgage term of 4.5 years, it allows for incremental rental adjustments to respond to market shifts.”
Jogia concludes, “Reflecting on market history, and considering the cycles of economic bubbles and recessions, it's evident that every seven to ten years there tends to be a downturn. It appears we are currently experiencing one of these periods.
“However, I believe our business is fundamentally positioned for growth, given the industries we have selected and the strong operating model we have solidified. It’s our belief that this positioning makes us resilient and defensible in the face of potential market weaknesses.”
This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.
