The Resilience of Edmonton's Rental Market in 2023
Despite the global economic turbulence caused by the pandemic, Edmonton's rental market has shown remarkable resilience. The city's vacancy rate for purpose-built rental apartments dropped significantly from 7.3% in October 2021 to just 4.3% in October 2023. This shift reflects a tangible growth in rental demand, outpacing increases in supply, spurred by improved labour market conditions and record net international and interprovincial migration.
Edmonton's rental universe is expanding at a pace higher than any previous decade, offering investors in the real estate sector a wealth of opportunities. This growth, coupled with modest increases in same-sample apartment rents in 2023, has placed upward pressure on rent levels.
Alberta's Economic Rebound and its Impact on Edmonton's Rental Market
A strong post-pandemic recovery and high commodity prices have driven a sharp economic rebound in Alberta, benefiting the Edmonton Census Metropolitan Area (CMA). As of October 2022, total employment in the Edmonton CMA improved by 3% compared to the previous year, and full-time employment was up by 4%, both surpassing pre-pandemic levels.
This broader labour market improvement was accompanied by gains in employment among key cohorts driving rental demand, particularly among people aged 15 to 24. Additionally, the job vacancy rate in the Edmonton CMA increased to 4.6% as of the second quarter of 2022, a rate unseen since early 2015.
In-Migration Boosts Rental Demand
Rental demand was bolstered by provincial in-migration, with a record high recorded in the second quarter of 2022. Approximately half of international migrants in the second quarter were non-permanent residents, indicating a potential rise in student rental demand.
Net interprovincial migration into Alberta also returned to peak levels unseen since 2012/13. Together, these migration trends contributed significantly to the strong growth in rental demand, leading to a decline in the vacancy rate.
Changing Market Conditions and Rental Trends
Despite significant new additions to supply, vacancy rates across all apartment types declined, reflecting the robust rental demand. The tightening rental market was also marked by a 1.5% increase in same-sample apartment rents from the previous year.
Landlords have been using incentives such as free rent periods, reduced pricing for cable and Internet services, and move-in bonuses to attract potential tenants. However, the use of such incentives has become less prevalent as market conditions stabilize.
Impact of Inflation and Housing Affordability
Higher inflation over the past year has impacted household budgets, leading to increased competition for affordable units. If vacancy rates decline further, affordable housing could become a significant concern, particularly for those in the lowest income quintile.
Condominium Rental Apartments and the Cost of Ownership
While the vacancy rate for condominium rental apartments remained statistically unchanged in 2022, the average rent for a condominium apartment was $1,272, representing an average premium of $78 relative to the purpose-built rental market.
The gap between the cost of ownership and renting has grown due to rising mortgage rates. Consequently, existing tenants may choose to remain in their rental units longer before moving to home ownership, adding to rental demand.
Alberta: A Feast for Yield-Hungry Residential Rental Investors
With rising demand, relatively low per-door prices, and no rent controls, Alberta is shaping up to be Canada's top market for residential rental investors. Edmonton, in particular, is emerging as an attractive investment hub for landlords and investors.
Edmonton: A City of Opportunity in the Long Run
Edmonton's rental market potential is being recognized by investors and immigrants alike. The city's high in-migration rates are expected to continue to drive housing prices upward. Notably, older apartment buildings in Edmonton are trading at around $120,000 to $150,000 per door, making the city more opportunistic in the long run.
As of October 2023, the average rent for a 4-bedroom apartment in Edmonton is $2,000, marking a 3% increase compared to the previous year. Further, landlords who rent their units furnished can expect to benefit more, particularly for short-term rentals.
Edmonton's robust rental market and Alberta's economic rebound create a compelling case for investment in the province's real estate sector. As Edmonton continues to attract a steady stream of migrants and investors, the city's rental market is poised for further growth, signaling exciting times ahead for Alberta's real estate sector.