Developers racing to cash in on hot Ottawa rental market

A consortium of local developers made headlines this week with an ambitious proposal to build Ottawa’s tallest highrise in a project that will feature more than 1,200 apartments ​– just one of many buildings either planned or under construction that will add to the city’s stock of purpose-built rental units.

Last year, developers in Ottawa started construction on 1,500 new apartment units as developers who’d soured on a soft condo market rushed to meet pent-up demand on the rental side. Yet along with that drive to satisfy a surging market comes questions about whether Ottawa will be able to absorb the anticipated flood of new units.

Claridge Homes, Tamarack and RioCan are among other property developers that are aiming to boost the supply of rental units in the nation’s capital, where the vacancy rate last year fell to just 1.7 per cent, its lowest level in six years, according to the Canada Mortgage and Housing Corp. Average rents, meanwhile, rose to $1,113, an increase of 2.1 per cent over 2016.

The vacancy rate in the central core is even lower – a mere 1.1 per cent downtown, 1.4 per cent in Hintonburg and Westboro North and a microscopic 0.2 per cent in the Glebe and Old Ottawa South. Not surprisingly, average rents in those neighbourhoods are even higher than in Ottawa overall.

To many local developers and real estate experts, it’s a clear sign that Ottawa’s aging stock of rental properties – CMHC says more than 80 per cent of the city’s 62,000 purpose-built apartment units were constructed before 1990 – needs a refresh.

“We haven’t seen an increase in supply for years and years,” says CMHC senior analyst Anne-Marie Shaker, noting a total of just 83 new apartment units were built in 2005 and 2006 combined. “The stock is aging, so builders are seeing an opportunity now.”

Experts point to a combination of factors – from rising house prices, escalating interest rates and stricter mortgage rules to robust employment levels in the 25-to-44 age demographic, the group most likely to rent rather than buy – that are fuelling the growing demand for new apartments.

“Just looking at the residential (housing) market in Ottawa right now, prices have been escalating,” says George Djuric, an investment sales specialist in the Ottawa office of Colliers International.

"A lot of (Ottawa residents) are getting slotted into the rental market just by not being able to afford the homes that they want."

“And that’s pushing a lot of people out of the marketplace. A lot of them are getting slotted into the rental market just by not being able to afford the homes that they want. So if a product comes out on the market, and it’s appealing and it’s new, it’s exciting, I think that it’s a home run on all aspects.”

He calls the proposed mixed-use complex of three highrises near the Bayview LRT station, with the aforementioned 65-storey tower that will soar more than 750 feet and feature 60 floors of residential units, an example of such a marquee development.

Critics say the proposed towers are too tall and poorly integrated into the surrounding neighbourhood, but Djuric says the Bayview proposal fills an obvious need for rental accommodations near what’s expected to become a bustling transit hub at the intersection of the Trillium and Confederation light-rail lines.

900 Albert
Trinity Development Group, InterRent Real Estate Investment Trust and PBC Real Estate Advisors are partners in the plan to build three towers of 65, 56 and 27 storeys at 900 Albert St., across from the Bayview LRT station.

“I think a project like that is going to push the envelope in a city that’s clearly developing and expanding,” he says. “I think it’s a phenomenal project, and I think it’s natural progression in a city that’s seeing a lot of growth real estate-wise. I know there’s been some pushback, but I certainly think that there’s a demand for that type of product right now.”

That project – led by Trinity Development Group, InterRent Real Estate Investment Trust and PBC Real Estate Advisors – might be the biggest single development on the horizon, but it’s far from the only one.

‘Natural progression’

Claridge Homes is building or planning to build up to five separate apartment complexes in the central core that, when completed, will add a total of more than 900 units to Ottawa’s rental inventory over the next few years. The largest one will be a 300-suite mixed-use project in the ByWard Market area that Claridge hopes to get off the ground next year.

Claridge vice-president Neil Malhotra says his company simply saw an opportunity to fill a gap in the city’s red-hot rental scene, particularly in neighbourhoods such as Centretown and the Market.

“It feels like there’s a need for more and more downtown-based rental options,” he says. “As housing gets more expensive and interest rates move up, I think it’s a natural progression that there will be more renters. For us, we’re diversifying and creating options just because we feel that’s where the market’s going.”

Malhotra also says apartment living is an attractive option for many younger residents who like the freedom of not being locked in to a long-term mortgage.

“They just want to be able to pick up and move on,” he says.

Tamarack Homes is also stepping up its presence in the apartment market. The Ottawa-based builder recently started renting its 184-unit 1140 Wellington project in Westboro, which features a mix of luxury one- and two-bedroom suites that were originally intended to be condos.

Max Damour, the owner of boutique Hintonburg real estate brokerage Blue Panda Realty, is managing the leasing at 1140 Wellington. The veteran broker says demand has been brisk, with 20 per cent of the suites already rented to tenants who will start moving in this fall. Many of them, he says, are recent retirees who’ve decided to downsize but don’t want to buy another house at current prices.

Another major project slated for completion next year is RioCan and Killam Apartment REIT’s 228-suite development near Gloucester’s Blair LRT station. It’s part of a planned multi-phase complex that could eventually include up to 840 apartments.

As bullish as he is on Tamarack’s project, Damour says he’s not convinced the Ottawa rental market can readily absorb the flood of new rentals expected to appear over the next two to three years.

“I think the same thing is going to happen five years down the road as what we just saw with the condo market,” he says. “I mean, it’s a lot of units. I’m not sure where those people are going to come from.”

But RioCan senior vice-president Jonathan Gitlin says he’s not worried about an apartment glut, adding the east-end project’s proximity to light rail and retail hubs such as Gloucester Centre should make it an appealing option for tenants.

“Regardless of what other product is coming to the market, we’re confident that this will be a successful project and that there will be a great deal of demand.”