Rental Market Overview 2010 & Beyond& Beyond

FRPO & GTAA Rental Market UpdatepJanuary - 2011

Ted TsiakopoulosOntario Regional EconomistCMHC Market Analysis Centrettsiakop@cmhc cattsiakop@cmhc.ca

Housing market intelligence you can count on

Economic Shocks and Global Interest Rate Policy

IT Stock Market Crash September 11 2001 September 11, 2001 US Housing/Credit Crisis European Debt Crisis

Canada Mortgage and Housing Corporation

Rental Market Key Stories: 2010/11

C di l k h i h d Canadian rental markets have tightened

Housing hangover, improving economy, less monetary stimulus –good news for rental sectorgood news for rental sector

Bullish US rental sector – sign subdued US recovery ahead

Investment fundamentals remain strong in Canada

Canada Mortgage and Housing Corporation

Apartment Vacancy Rates by Region

6 %

4

5 2008 2009 2010

3

4

1

2

0

BC ALTA SAS MAN ONT QUE NFLD CAN

Canada Mortgage and Housing Corporation

Source: CMHC

Apartment Vacancy Rates in Ontario

12 0

14.0

6.0

8.0

10.0

12.02009 2010

0.0

2.0

4.0

Barr

ie

Bran

tford

r Su

dbur

y

Gue

lph

Ham

ilton

Kin

gsto

n

Kitc

hene

r

Lond

on

Osh

awa

-Gat

inea

u

erbo

roug

h

s-N

iaga

ra

unde

r Ba

y

Toro

nto

Win

dsor

Ont

ario

Gre

ater K

Ott

awa-

Pete

. Cat

hari

ne Th u

Canada Mortgage and Housing CorporationSt

.

Source: CMHC

Net Operating Income of Multi-Residential REITS

12West Central Canada & East

6

8

10

2

4

6

-2

0

-4

Q3 2009 Q4 Q1 2010 Q2 Q3

Canada Mortgage and Housing Corporation

Source: NBF, Bloomberg

GDP and Job Growth by Province – 2010

NFLD

3

BCMAN

ONT

QUE

NFLD

2

2.5

% c

hg

SAS

ONT

1

1.5

ob

Gro

wth

%

ALTA0.5

1Jo

0

0 1 2 3 4 5

GDP % chg

Canada Mortgage and Housing Corporation

Source: Statistics Canada, CMHC forecast

Vacancy Rate vs. Unemployment Rate

10 %

7

8

9 unemployment rate vacancy rate

4

5

6

1

2

3

0

1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Canada Mortgage and Housing Corporation

Source: Statistics Canada, CMHC forecast

Ontario Share of International Migration

85%

65%

75%

Long Term Avg

45%

55%

25%

35%

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

Canada Mortgage and Housing Corporation

Source: Statistics Canada

Bank of Canada Overnight Rate

%6

4

5

6

3

4

1

2

000 01 02 03 04 05 06 07 08 09 10

Canada Mortgage and Housing Corporation

Source: Bank of Canada

Real Estate Cycle and Rental Demand Outlook

Vacancy Low / Inflation Adjusted R Hi hRent High

Vacancy High(Inflation

Vacancy Falling/Inflation Adjusted Rent Rising

Vacancy High(Inflation Adjusted Rent Low

Tighter Monetary Policy

2000 2004 2011 2012

Tighter Monetary Policy

Canada Mortgage and Housing Corporation

Source: CMHC

Canada’s Economic Story

MANUFACTURING INVESTMENTS

2010 story

ENERGY/NON ENERGY INVESTMENTS

2011 story

Canada Mortgage and Housing Corporation

Share % of Exports to Emerging Markets

20

14

16

18

Western Canada Ontario

8

10

12

4

6

8

0

2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Canada Mortgage and Housing Corporation

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Industry Canada

Economic Indicators Pointing to Gradual US Recovery

Soft US consumer confidence levels So t US co su e co e ce eve s

High US unemployment rates & growing duration

High private and public sector debts High private and public sector debts

US RENTAL MARKET PROSPECTS

Canada Mortgage and Housing Corporation

REIT Price to Earnings Multiples Multi Family Sector – Multi Family Sector

25

20

10

15

5US P/E CDN P/E

0

Canada Mortgage and Housing Corporation

Source: NBF, Bloomberg

Factors Creating Vacancy Pressures +/-

Ontario Region Factor Vacancy + /-

Southwestern Ontario Manufacturing Neutral

Nothern Ontario Mining Downward

Southern Ontario Pull Forward Demand Effect & Immigration DownwardSouthern Ontario Pull Forward Demand Effect & Immigration Downward

Technology Triangle Business Spending Downward

Source: CMHC

All Interest Rates & Economic Cycle Downward

Canada Mortgage and Housing Corporation

Canadian Long-Term Bond Yields

18

20 %

12

14

16

18

6

8

10

12

2

4

6

0

980M

0198

1M02

982M

0398

3M04

984M

0598

5M06

986M

0798

7M08

988M

0998

9M10

990M

1199

1M12

993M

0199

4M02

995M

0399

6M04

997M

0599

8M06

999M

0720

00M

0820

01M

0920

02M

1020

03M

1120

04M

1220

06M

0120

07M

0220

08M

0320

09M

0420

10M

05

Canada Mortgage and Housing Corporation

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2

Source: Bank of Canada

Risk/Reward Trade-Off – Multi-Residential Sector

12Long Term Average Returns % (left scale)

9

Residential Real Estate

BondsG ldE

6T-Bills

GoldEquities

3Inflation

0 10 20 30 40 50risk (volatility of returns %)

0

Canada Mortgage and Housing Corporation

Source: ICREIM/IPD Canada Property Index Database, Statistics Canada, Bank of Canada, CMHC

Vacancy Rate Forecast Summary - Ontario

CMAs 2010 2011fHamilton 3.7 3.5Hamilton 3.7 3.5Kingston 1.0 1.2Kitchener 2.6 2.4London 5.0 4.8Ott 1 6 1 2Ottawa 1.6 1.2St. Catharines 4.4 4.2Sudbury 3.0 2.0Thunder Bay 2.2 2.0Thunder Bay 2.2 2.0GTA 2.1 2.0Barrie 3.4 3.7Peterborough 4.1 4.5

fBrantford 3.7 3.5Guelph 3.4 3.2Windsor 10.9 10.5Ontario CMA Avg 3 7 3 5

Canada Mortgage and Housing Corporation

Ontario CMA Avg 3.7 3.5Source: CMHC forecast (f)

FINAL THOUGHTS

Canadian rental market will tighten further, led by the westCanadian rental market will tighten further, led by the west

Monetary policy & economic cycle accommodating for rental

Low cap rates a sign of lower long term yields but also strong Low cap rates a sign of lower long term yields but also strong buying vs. selling

Investment outlook improving: lower vacancies & less turnover p g(opportunity), more supply (challenge)

Slower rent growth, higher operating expenses, competing supply puts pressure on Ontario NOI next year

Canada Mortgage and Housing Corporation