Demographics to drive demand for apartments

By Robert Frank

Rentals are life’s bookends: We most like to lease when we’re first starting out and when we retire, Tom McCormack’s research reveals.

Residential real estate investors take note: Preference for apartment accommodation is highest among the bookend generations: 20-to-34-year-olds and those 75 and older.

“We will need more apartments during the coming decade,” Strategic Projections’ president suggested. “However, retirees tend to stay in their properties as long as they can from a financial and health perspective. So we will still need more single and detached properties than high-rise apartments.”

“By 2025, Canada’s aging Boomer cohort is projected to grow by 2.4 million—57 per cent of the country’s projected 4.2 million population growth,” McCormack reported.

The senior surge will therefore far more than offset a 317,000 drop at the other end of the adult age spectrum, the 20-to-24-year-olds.

While that’s good news for owners of existing properties, the type of apartment structure most in demand will likely shift, since senior renters like high-rise apartment towers more than their younger counterparts.

“There will be strong growth prospects for apartments of five or more storeys,” he predicted.

With most Boomers likely to call it quits by 2031, their impending retirement heralds a shortage of working-age adults just over the horizon. The only way to fill the gap is immigration, McCormack observed.

“We won’t have enough Canadian youth to fill all the jobs on market during the coming decade,” he warned.

He expects international and internal migration to take up the slack, with migrants adding nearly 350,000 people a year to Canada’s population by 2025, up from just over 200,000 today.

In contrast, he expects the natural increase in the population to drop from about 125,000 a year today to about 75,000 in 2025.

Supply varies widely nationwide

Currently, about 31 per cent of Canadian householders rent, rather than own.

Quebec and British Columbia have the highest proportion of apartment dwellers, and Quebecers’ preference for renting has long stood in contrast to the rest of Canada, where home ownership is the norm.

In terms of age, McCormack’s research shows that those under-35 are by far the most likely to rent. From 35 onward, the rate of home ownership increases steadily until retirement, then gradually eases off again toward the Canadian mean.

Though the rental rate never returns to the levels of the 25-to-35 level, according to his figures the sheer size of the Boomer cohort is nonetheless poised to drive rental demand during the next ten years.

The country’s largest cities—Montreal (134,000), Toronto (547,000) and Vancouver (128,815)—already have a substantial stock of high-rise apartment properties.

In contrast, the two largest cities in Canada’s hitherto-burgeoning oilpatch have a small fraction of those figures, with Calgary (29,200) slightly ahead of Edmonton (25,804) in that respect.

The remainder of Western Canada, combined, has a total of 65,920 apartments of five or more stories—more than half of them (35,875) in Winnipeg—and Atlantic Canada has just 22,025 such properties, McCormack said.

[Note: This report first appeared in Canadian Real Estate magazine]

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