Mid Island Q1 2012 Apartment Real Estate Report

mid-island british columbia

colliers international | real estate report

www.colliers.com/canada

Mid-Island Apartment Investment Overviewthe Mid Vancouver island multi-residential market displayed a consistent level of activity throughout 2011 with a total of 16 sales transactions, one transaction more than the year previous. notwithstanding the aforementioned, there was a significant increase in total sales volume, $38.4M in 2011 compared to $19.4M in 2010. these figures may not include sales in the form of share transfers, acquisitions of bare trustees or non arm’s length transactions and, as a result, total numbers could be slightly higher.

analyzing the 2011 market data in further detail reveals that there were increased levels of acquisitions by reit’s. specifically, northern property reit acquired three separate properties; two of which are located in nanaimo and one in courtenay, for a total sales volume of $12.6M. comparing all Mid-island markets, nanaimo remains the most active multifamily market in the region with a total 2011 sales volume of $13.3M.

the multifamily market has remained a “safe haven” for investors and as such, has seen an increase in demand in recent years. this demand, combined with a limited supply of available product, has put downward pressure on capitalization rates. the recent sale of 1651 Dufferin crescent epitomized this trend, selling for a 5.05% capitalization rate. However, we note that overall returns, or capitalization rates associated with multi-residential, as well as all other investment grade real estate categories, is reaching the lower limits of market tolerances.

SPRING 2012 | MULTIFAMILY

2011 Apartment Sale Breakdown by Total Dollar Volume

Campbell River

Chemainus

Courtenay

Ladysmith

Lake Cowichan

Nanaimo

Parksville

Port Alberni

Port Hardy

2011 highlights

> higher sales volumes

> increased vacancy levels

> lack of available product

> increase in demand

2011 market indicators

VacancY

Price Per sUite

sales VolUme

caP rates

6.3%

$82,000

$38.4m

6.0%

Hudson Bay

NorthAtlantic Ocean

MANITOBA

ONTARIO

QUEBECSASKATCHEWAN

ALBERTA

BRITISHCOLUMBIA

NORTHWESTTERRITORYYUKON

TERRITORY

NUNAVUT

NOVA SCOTIA

NEWFOUNDLAND & LABRADOR

NEWBRUNSWICK

Nanaimo

Vancouver

FortMcMurray

Edmonton

Calgary SaskatoonWinnipeg

Regina

Kelowna

SurreyVictoria Waterloo Region

Toronto

OttawaMontréal

St John’s

Burlington

Halifax

Moncton

CANADA

UNITEDSTATES

UNITED STATESBC MARKET: colliers has five offices in British columbia: Vancouver, kelowna, and surrey on the lower mainland, and nanaimo and Victoria on Vancouver island.

2011 market driVers

Historically low interest rates continue to drive demand in the multi-residential market segment. the other significant market drivers for the multi-residential rental market segment are directly related to 3 drivers manifested in this product segment, namely:

1. income predictability.

2. Market security and stability relative to other investment grade real estate options.

3. liquidity – there is a significant level of capital in the hands of investors targeting this product category.

notwithstanding the current lending environment, this property category has proven to be a consistently popular investor target with a capable purchaser pool ready to pursue properties within the acceptable market envelope.

APARTMENT TYPE 2010 RENTS 2011 RENTS

PERCENT

INCREASE/DECREASE

Bachelor 519 538 3.5%1 Bedroom 648 661 2.0%2 Bedroom 789 802 1.6%

3 Bedroom + 957 955 -0.2%Source: Fall 2011 CMHC Rental Market Report

Average Rental Rates By Apartment Type

VacancY oVerView

cMHc, in its most recent Fall 2011 rental Market report released in early December, states an overall apartment vacancy rate in the nanaimo census area (ca) of 6.3% overall, a marked increase from the 3.3% vacancy level contained in the october 2010 cMHc report. Most submarkets in the Mid-island region experienced increased vacancy, with the exception of campbell river and courtenay, registering 6.9% and 3.4% vacancy rates respectively. the city of parksville had the lowest vacancy rate of 2.0% of all the submarkets on Vancouver island. additionally, Duncan’s vacancy rate was 6.4% and port alberni’s was 7.2%.

market rental rates

cMHc rental rate figures for each Mid-island market can be obtained upon request. nanaimo figures are shown below. average rentals for 1 Bdrm and 2 Bdrm units in 2011 are compared with 2010 increases in the table below. legislated rental increases for 2010 were 3.2%, 2.3% for 2011 and for this year, 4.3%.

Source: Canadian Mortgage & Housing Corporation

3.0

4.0

5.0

6.0

7.0

Perc

ent

Nanaimo Apartment Vacancy Rate Increases

0.0

1.0

2.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

P. 2 | colliers international

REAL ESTATE REPoRT | spring 2012 | multifamily | mid-island

Capital Markets & Mortgage Financing

PROPERTY # STREET CITY CLOSED SALE PRICE # OF SUITES CAP RATE SALE PRICE/SUITE

Evergreen Court 1085 Piercy Avenue Courtenay 1/6/2011 $800,000 10 - $80,000The Highlands 2502 Highland Boulevard Nanaimo 2/9/2011 $2,440,000 21 6.29% $116,190Riverbend Terrace 659 Rosehill Street Nanaimo 3/31/2011 $2,913,000 - - -Regal Manor 600 South Island Highway Campbell River 4/14/2011 $2,360,000 - - -

Roselind Apartments 515 Hecate Street Nanaimo 4/29/2011 $500,000 6 - $83,333Town Park Apartments 7205 Pine Drive Port Hardy 5/3/2011 $1,842,117 71 - $25,945Cypress Gardens 265 Moilliet Street Parksville 5/4/2011 $2,500,000 31 5.69% $80,645Dufferin Heights Apartments 1651 Dufferin Crescent Nanaimo 6/1/2011 $7,500,000 63 5.05% $119,048

Ascot Gardens 240 Back Road Courtenay 7/14/2011 $3,225,000 32 -$100,781*

additional SFD not

included110 Esplanade Avenue Ladysmith 7/28/2011 $852,000 15 6.65% $56,800

Gulf View Estates 385 Davis Road Ladysmith 8/1/2011 $3,865,000 28 5.85% $138,036Cathedral Place 3855 11th Avenue Port Alberni 8/1/2011 $4,852,500 50 5.36% $97,050Chahalis Apartment 374 3rd Street Courtenay 9/29/2011 $875,000 8 - $109,375Louval Apartments 9930 Daniel Street Chemainus 11/1/2011 $775,000 11 6.32% $70,455The Pines Apartments 1055 10th Street Courtenay 11/15/2011 $2,201,494 33 6.17% $66,712North Shore Manor 28 North Shore Road Lake Cowichan 11/30/2011 $850,000 14 - $60,71416 Transactions $38,351,111

Market Transactions

Type of Financing Term Bond Yield

Lender

Spread Interest Rate

Conventional 5 1.65% 2.15 3.80%10 2.14% 2.50 4.64%

CMHC Insured 5 1.65% 1.05 2.70%10 2.14% 1.13 3.27%

First Mortgage Apartment Financing

Source: Colliers Research. Please note that these totals may not include share transfer transactions and includes sales greater than $500,000.

as the global economy continues its slow recovery, we expect interest rates to increase into 2013. positive economic news from the Usa (improving unemployment rates and an increase in consumer spending), along with a calming in the euro Debt storm in recent weeks, has boosted investor confidence and created a surge in longer term bond yields, resulting in a marginal increase in interest rates.

it is important to note that although we forecast an increase, interest rates will remain very low when compared to historical levels. these sustained record-low rates, combined with liquid balance sheets, have investors on the sidelines ready to make strategic real estate acquisitions, creating a continued demand for high quality, well-located canadian real estate.

Based on current Government of canada Bond Yields (effective May 2, 2012) and recent quotes from a number of institutional lenders,

colliers capital Markets division is sourcing both conventional and cMHc insured first mortgage apartment financing at the following interest rates (indication only):

please contact our capital Markets team if you would like current indication rates, or to discuss refinancing for the purpose of improving cash flow, making capital improvements, or additional real estate acquisitions.

colliers international | P. 3


CoNTACT INFoRMATIoN

dave ganong Managing Director | Victoria Direct: +1 250 414 8388 [email protected]

Brad archibald associate Broker & Multifamily specialist | Victoria Direct: +1 250 740 1060 ext. 2224 [email protected]

Jason winton Managing Broker & Multifamily specialist | Victoria Direct: +1 250 740 1060 ext. 2223 [email protected]

tyler dolan assistant Vice president capital Markets | Victoria Direct: +1 250 414 8378 [email protected]

christina dhesi research & Market analyst | Victoria Direct: +1 250 414 8371 [email protected]

This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/ or its licensor(s). © 2012. All rights reserved.

accelerating success.

Market Forecast 2012nanaimo’s rental pool will increase by approximately 146 total units, one of the first increases in approximately 20 years. the Molnar Group will be finalizing their new 121 unit apartment block, comprised of 1 to 3 bedroom units, located at 775 terminal avenue, just north of downtown nanaimo. Furthermore, Great West Developments ltd. will be completing the nanaimo student Housing project, located along Wakesiah avenue comprising 25 units and 37 beds. additionally, a mixed-use residential and commercial development at 560 third street is currently in the rezoning stages and, once complete, will comprise a five storey student residence with 50 units. overall student enrollment at Vancouver island University has increased to approximately 11,000 students and ample and available rental accommodations are becoming increasingly scarce. Growth in student population is expected to continue over the long term and, as such, increased demand for rental housing in the University District, along with other regions in the city of nanaimo is forecast.

We anticipate that demand for nanaimo rental units will grow because of an increase in employment opportunities associated with the awarding of the Federal Government ship building contracts, a portion of the total $8B which will flow to the nanaimo shipyards Group. However, as mentioned, there are two significant additions to purpose built rental that will be delivered this year and could negate the economic impacts of the federally granted contracts. that being said, we foresee the nanaimo vacancy rate leveling out over the course of 2012.

as far as investment activity, the market currently has a strong appetite for consistent income producing properties and, combined with continued low financing rates, this trend is projected to continue. as a result, capitalization rates will continue to compress slightly in the nanaimo and Mid-island regions.

Colliers Apartment Investment DivisionWe invite apartment owners and investors alike to contact our colliers Victoria and nanaimo apartment specialists Divisions. our specialists, in the person of Ken cloak in Victoria and Jason Winton, and Brad archibald in nanaimo, will be pleased to apply our specialized expertise to owners looking to maximize the value of their apartment assets.

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Mid Island Q1 2012 Apartment Real Estate Report

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