Cap rates rise, but multi-family real estate remains strong with growing demand and rent increases
In an exclusive feature by Wealth Professional and in partnership with Equiton, the topic of capitalization rates (or “cap” rates) is explored in the context of investing in income-producing real estate.
Cap rates have risen among most Canadian property types in recent years, especially in key markets like the Greater Toronto Area. Financial advisors must understand cap rates and their role in valuing real estate properties.
Net operating income (NOI) is a crucial factor that, when dynamic, influences a property's value significantly.
Jason Roque, CEO of Equiton, emphasizes that “cap rates are just one piece of a much larger puzzle. It’s important to take a holistic approach and look to the future.”
Cap rates alone are insufficient for comparing properties across various categories or markets, and focusing solely on them can lead to missed investment opportunities.
“Firms with an active management approach can really stand out in a high cap-rate environment for the value they can unlock,” Roque adds. Equiton’s property management arm, Equiton Living, helps build close relationships with residents, enhancing property values strategically.
In the multi-family residential sector, cap rates have remained stable, supported by increasing housing demand and rent growth. Population growth, driven by immigration, and home affordability challenges continue to bolster this sector.
The Canada Mortgage and Housing Corporation (CMHC) predicts record rental occupancy and rent increases in 2024.
The Bank of Canada’s recent interest rate cut and anticipated further reductions may decrease cap rates and create opportunities to increase NOI.
Roque concludes, “Taking a long view of real estate investment means committing to a strategy designed to weather challenging conditions, positioning for sustainable growth when markets are strong.”
