Alberta real estate developer Riaz Mandami sees rental housing more profitable than office spaces in 2016 due to continuous slide in oil prices.
Mandami, head of Strategic Group, diverts his focus this year on rental housing market. According to The Globe And Mail, the company's focus is mainly on buying and building office spaces in the Calgary area. The current five apartment buildings under construction owned by the group will have to increase to nine as the company plans to build more by June. He also expects that over the next three years, rental housing will expand.
"We see an opportunity that we couldn't have otherwise been pursuing but for the fact that the more lucrative opportunity, which has always been office buildings in our portfolio, doesn't make sense today," Mamdani said.
It also seems like Mamdani is not the only one that is seeing things like this.
"This will be a record-breaking year for multifamily housing," Christina Butchart, analyst from Canada Mortgage and Housing Corp from Edmonton, said. He was referring to the rise of housing starting November across the Prairies which surprised analysts.
Business Vancouver also reported that the weakening of mining and energy markets affects non-residential investment greatly. This effect on the national and global economy will reportedly persist into mid- or late 2016.
Meanwhile, multifamily housing is said to hit their highest levels recorded in Edmonton in 2015, and Calgary in their second highest since 1981. It is also surprising that there are high levels of construction in Calgary and Edmonton when there is also a rise of vacancy rates due to rising job losses. Calgary's vacancy rate was 5.3 percent in October 2015, up from 1.4 percent in 2014.
Interest in rental lodging has dramatically increased in Calgary this year, land financier Avison Yong said in a mid-year report. That was driven by higher costs, as opposed to more properties evolving hands, as the cost per unit that financial specialists paid for rental lodging in the city hit its second-most elevated point in the previous 25 years.
"What's happening now is what happened in 2009 and 2010," Sam Kolias, head of Alberta-based rental landlord Boardwalk REIT, told analysts. "There just weren't sales because apartment owners have access to capital, very inexpensive capital, and they are not under any pressure to sell," he continued.
This goes to show that the greatest component driving new rental development in the region is access to shabby financing on account of incredibly low loan costs.