Canada, Multi-Housing MarketView Q4 2012

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1 Canada, Multi-Housing MarketView Q CBRE Global Research and Consulting VACANCY RATE 2.3% NET RENT $932.78/Unit (Composite) NEW UNITS 3,134 AVERAGE CAP RATE 5.09% Arrow indicates year-over-year change SUPPLY CONSTRAINTS KEEP MULTI-HOUSING KEENLY CONTESTED 1 Executive Summary The multi-housing market continued its winning ways in 2012 with healthy demand and exceptionally low vacancy - a trend seen across the country. Extremely low vacancy rates and steady rental growth was the hallmark of many markets, a long-term trend that shows no signs of dissipating. The fundamentals of the Canadian multi-housing market point towards sustainable growth with moderate volatility as supply and demand forces align. Historically low vacancy rates, leave little room for improvement in occupancy, and therefore a cycle of supply will be needed to mitigate demand pressures. The most important factors to influence multi-housing fundamentals will be immigration and the trend of intensification of urban centres. Investment volume for multihousing assets surged in 2012 due to significant interest from REITs and REOCs, resulting in continued cap rate compression. Canada s multi-housing rental market continues to be characterized by little or no vacancy and steady demand from renters from coast to coast. The national vacancy rate increased 20 basis points (bps) year-over-year (YoY) to 2.3% at year-end 2012, but remained below the 10-year average of 2.4%. There were very few areas of the country in which multi-housing fundamentals could be described as weak. Sizeable job gains in all provinces proved to be a powerful driver of demand. Economic growth though remained most robust in the resource rich west, which drove populations higher through interprovincial migration and increasingly immigration. Vancouver and Calgary in particular have demonstrated a 10-year average growth rate in net migration of 3.1% and 5.3% respectively, considerably above the national average. The biggest challenge to the Canadian multi-housing market in the last decade has been the rush to homeownership, not economic difficulties. Rising home prices across the country, and in particular dramatic price increases in some of Canada s major markets, however, has begun to push many Chart 1: Affordability Gap Continues to Widen Indexed to people out of the housing market and into an already burgeoning rental market, see chart 1 below. The demand for rental housing is expected to therefore only increase. The size of the rentable universe, however, is unlikely to see any significant increase as new multi-family starts are heavily weighted towards ownership and not rental. The shadow rental market (privately owned condominium units being put into the rental market), however, has shown significant growth over the past few years, and even with higher average rents it is helping to add relief to rental supply and demand forces. To give a sense of the size of the shadow rental market, Ottawa, Toronto, and Vancouver saw 20.7%, 22.6%, and 25.9% of condominiums being used as rental housing, respectively, in 2012, with each market growing over the year. Calgary and Edmonton recorded shadow rental market rates of 30.4% and 31.8% of all condominiums, respectively, growing significantly more than the aforementioned cities. Montreal and Quebec City have substantially smaller shadow markets, at 1 and 9.0% National Avg. Home Price National Avg. 2-Bdrm Monthly Rent Personal Income Per Capita Source: CREA, CMHC, Conference Board of Canada

2 Table #1: Market Statistics Market Area Vacancy Rate Change (Y/Y) Rent*/Month 2012 Sales Volume (CAD millions) Volume Change (Y/Y) Number of Transactions Per Suite (CAD) Calgary 1.3% -60 bps $995 $ % 66 $169,525 Edmonton 1.7% -160 bps $978 $ % 34 $106,821 Halifax 60bps $893 $ % 13 $95,021 London 3.9% 10bps $823 $ % 33 $103,031 Montreal 2.8% 30bps $691 $1, % 234 $94,343 Ottawa 2.5% 110bps $1041 $ % 69 $116,288 Toronto 1.7% 30bps $1110 $1, % 220 $144,152 Vancouver 1.8% -40bps $1147 $ % 117 $211,518 Waterloo Region 2.6% 90bps $845 $ % 72 $97,548 Winnipeg 1.7% 60bps $ Canada 2.3% 20bps $933 $5, % 858 $122,255 Source: CMHC, CBRE Limited, RealNet Canada Inc. and RealTrack Inc. * Composite 2 Resale Home Price ($2002) Chart 2: Economic Trends 2.5% 1.5% 0.5% Chart 3: Canadian Resale Housing Market $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13* 2Q13* 3Q13* 4Q13* Source: Conference Board of Canada & Statistics Canada Employment % Change GDP % Change *Forecast Sales To Listings Ratio Average Resale Home Price Sales to Listings Ratio After an encouraging start to 2012, the Canadian economy staged a modest deceleration in the second half with third quarter 2012 gross domestic product (GDP) growth coming in at 0.7% (annualized) and fourth quarter GDP at 0.6% (annualized). For the coming quarters GDP growth is expected to range between and 2.2%, annualized. Canada s economy continues to be buffeted by slower global trade and a softening in the domestic housing market as recent mortgage tightening rules put forth by the Canadian Mortgage and Housing Corporation (CMHC) in July 2012 took effect. Canada s labour market enjoyed a very robust fourth quarter with employment up by 101,000 jobs. This compares with 56,000 in the third quarter, 73,000 in the second quarter and 82,000 in the first. With sizeable gains in the fourth quarter of 2012, the unemployment rate fell 30 bps quarter-over-quarter (QoQ) to 7.1%; representing a four year low. For 2013 overall employment is expected to increase 1.2%, or 212,000 jobs, which will represent a modest slowdown from the 1.8% increase in Some of the lather has been taken off the housing market, especially for high-end homes in Vancouver; however, the national average resale home price declined only slightly in 2012 to $355,800. The sales to listings ratio remains near 50 which suggests most markets are in balanced territory and does not point to significant difficulties despite suggestions to the contrary. 2 Source: CREA

3 Chart 4: Canadian Multi-Housing Vacancy Rate Vacancy Rate (%) Vacancy Rate (%) 4.0% 2.5% 1.5% 0.5% Source: CMHC Yr Avg. Chart 5: Vacancy Rate by Market Vacancy Rate Montreal Toronto Vancouver Edmonton Ottawa Calgary As a result of a robust economy and a growing population, vacancy rates in Calgary and Edmonton continue to decline steeply from recessionary peaks. The Calgary vacancy rate has fallen 400 bps from 5.3% at mid-year 2009 to 1.3%, while the Edmonton vacancy rate has fallen 350 bps from mid-year 2010 to 1.7% at year-end In 2012, both Calgary and Edmonton defied the national trend of increasing vacancy rates, with vacancy declining 60 bps and 160 bps. Elsewhere in Western Canada, Winnipeg and Regina also recorded very low vacancy rates finishing the year at 1.7% and, respectively. Demand for rental housing moderated in Vancouver, with vacancy increasing by 40 bps year-over-year to 1.8%. This countered forecasts, which estimated Vancouver s multi-housing market would see vacancies fall to just 1.1%. Both economic growth and the demand for rental housing were relatively less robust in Eastern Canada. A relative slowdown in immigration into Toronto, at 56,416 new immigrants in 2012, pushed vacancy up 30 bps YoY to 1.7% in However, this must be put in the context of 2011, a very strong year for the multi-housing market, where Toronto saw a vacancy rate of 1.4%, the lowest level in 14 years. Likewise, Montreal s vacancy rate increased 30 bps YoY to finish 2012 at 2.8%. 3 Monthly Rental Rate Chart 6: Rental Rates by Unit Type Monthly Rental Rate $1,200 $800 $600 $400 $200 $1,400 $1,200 $800 $600 $400 $200 Oct Bachelor One-Bdr Two-Bdr Three-Bdr Overall Avg. Chart 7: Rental Rates* by Market Vancouver Toronto Ottawa Calgary Edmonton Montreal * Composite The national average rental rate grew by in 2012, above the annual inflation rate of 1.5%, as measured by the Consumer Price Index. Inflation was higher in the Maritime Provinces; however rental growth for the four provinces together averaged 3.8% in 2012, significantly above the national average. Prince Edward Island led rental growth for the nation at 5.6%, followed by Manitoba, at 4.4%, then Alberta, at 3.9%. Quebec was the only province to report negative rental growth, down 0.4%, with major municipalities such as Montreal and Saguenay recording rental rate depreciation of 1.1% and 1.4%, respectively. The provinces west of Ontario averaged annual growth of 3.8%, led by Saskatchewan and Manitoba, at 4.8% and 4.4%, respectively. Average rents in Alberta grew by 3.9%, while rents in British Columbia grew by 2.2%. Ontario s average rental rate grew by 3.1% in 2012, with Oshawa the only major municipality to report a decrease in rental rates. Toronto was consistent with the provincial average, recording growth of. 3

4 Volume Chart 8: Multi-Housing Trade Activity $6,000 $5,000 $4,000 $3,000 $2, Source: CBRE Limited, RealNet Canada Inc., and RealTrack Inc. Capitalization Rate Chart 9: Capitalization Rates 7.0% 6.0% 5.0% 4.0% Source: CBRE Limited # of Trades Sales Volume Average High Rise Class B Cap Rate # of Transactions There were 858 multi-housing transactions in 2012 worth a total $5.9 billion. Although the number of transactions was up only slightly from 810 in 2011, the dollar volume was up 63.8% YoY. It should be noted that although seniors housing is not traditionally included in multihousing, for the purpose of investment volume tracking it is included in these numbers. As a result, the large jump in volume can be partially attributed to a number of large transactions including the Chartwell REIT and Health Care REIT National Apartment Portfolio ($925.0 million - 8,187 units) and the Western Securities Portfolio ($137.0 million units). Institutional and foreign investors remain highly interested in the Canadian multi-housing market, but the lack of available product and dominance of private buyers and REITs and REOCs has made acquisitions by these two groups difficult in a competitive market. Private buyers accounted for 57.1% of multi-housing investment volume in 2012, down from 77.1% in 2011 and 82.1% in The drop was due to increased demand from REITs and REOCs, which accounted for 32.9% of the volume, up from 19.4% of volume in 2011, and 6.3% in REITs have been able to make headway in this market due to an ample supply of low cost capital. Cheap financing remains available, supporting private buyers, with loanto-value ratios up to 85.0% are available to purchase product. Furthermore, the Canadian Mortgage and Housing Corporation (CMHC) lending rates consistently beat those offered by conventional lenders. Foreign purchasers did make headway; however, high prices continue to marginalize most, which saw peak foreign investment in 2008 accounting for 2 of total multihousing investment volume. In 2012 foreigners accounted for 6.1% of volume, up from in Chart 10: Price Per Suite Price Per Suite $250,000 $200,000 $150,000 $100,000 $50, The national average price per suite rose 20.7% in 2012 to $122,255, up from $101,278 in Multi-housing properties are being targeted as land plays in the Vancouver market, which pushed the average price per suite in this market up 15.0% from 2011 to $211,518. There was limited transaction activity in Alberta as owners chose to hold rather than sell. The average unit price also appreciated in Central and Eastern Canada, with the exception of Montreal. Contrary to 2011, the increase in the national price per suite was driven by markets coast to coast, as opposed to just the western markets, which drove price appreciation in Vancouver Calgary Edmonton London Waterloo Toronto Ottawa Montreal Halifax National 4 Source: CBRE Limited, RealNet Canada Inc., and RealTrack Inc.

5 Table 2: Select Multi-Housing Transactions Canada-Wide Purchaser Property Name/Address Price Size (Units) Price Per Suite Homestead Land Holdings Limited 80 Forest Manor Road, 25 & 125 Parkway Forest Drive, and 1751 & 1761 Sheppard Avenue East, Toronto, ON $173,320,198 1,022 $169,589 Western Securities Ltd. Applewood Village, Woodland Manor & Glenmore Estates, Calgary, AB $138,850, $184,641 Minto Multi-Housing Income Partners I Applewood Village, Woodland Manor & Glenmore Estates, Calgary, AB $136,970, $182,141 Bosa Group Pacific Point 1331 Homer St., Vancouver, BC $78,620, $346,344 Akelius Canada Ltd 798 & 800 Richmond Street West, Toronto, ON $75,000, $134,892 Timbercreek Asset Management 100 & 110 Parkway Forest Drive, Toronto, ON $71,889, $166,411 HealthLease Properties REIT The Beverly Centre & The Beverly Estate - Lake Midnapore, Calgary, AB $68,800, $215,000 Chartwell Seniors Housing REIT Scarlett Heights, Etobicoke, ON $59,304, $287,885 Concert Properties Ltd. Whitgift Gardens, Coquitlam, BC $57,500, $184,887 Q Residential 125 Bamburgh Circle, Toronto, ON $55,000, $165,663 Chart 11: Multi-Housing Inventory Breakdown Montreal: 38.4% (453,522 units) Toronto: 26.O% (307,773 units) Vancouver: 8.9% (105,064 units) Ottawa: 5.1% (60,160 units) Edmonton: 4.9% (57,588 units) Calgary: 2.9% (34,212 units) Other: 13.9% (164,254 units) 38.4% 26.0% 13.9% 8.9% 5.1% 4.9% 2.9% CONTACTS Source: CMHC For more information about this Canada, Multi-Housing MarketView, please contact: Canada Research Ross J. Moore Director of Research, Canada CBRE Limited t: e: ross.moore@cbre.com Roelof van Dijk Research Manager, Canada CBRE Limited t: e: roelof.vandijk@cbre.com Follow us on TWITTER Global Research and Consulting This report was prepared by the CBRE Canada Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist. 5