Real Estate Vacancy Rate Analysis
Some degree of uncertainty lies surrounding how vacancy rates are assessed and how they impact a local real estate market. Investors are unclear and wary as to how vacancy rates factor into their market analysis. The media at times exaggerates or neglects to this crucial factor when reviewing a market and it’s direction.
Clarifying the Process
Provide an overview of how vacancy rates are determined and the role they play in determining a market’s potential. Research and analyze the short-term and long-term vacancy rate changes in the residential and commercial sectors. We conduct various data analysis and develop numerous insights through data visualizations on a market’s health.
Understanding Industry Challenges
As the real estate industry evolves to adapt to a technological age ridden with data, investors with a traditional background are facing a challenging environment where they are inundated with numerous data. Investors are often grappling with how to decipher and analyze the large amounts of data. Our job is to bring clarity to help them make clear decisions.
Clarity Through Insight Analysis
Consumers were provided with clarity and a deeper understanding of vacancy rates and their resulting impact. Simple and prudent advice allows investors to grasp the data in an easily digestible format. Investors can correlate the various metrics and data in order to make informed decisions on their future investments.
Timing the market is not an easy undertaking. Understanding which phase we are in and what metrics play a significant role in market shifts. An integral process to bring clarity to housing cycles is understanding the economic fundamentals including both macro and micro to achieve a more complete picture of where housing stands and where it is shifting. One of the key indicators to watch for is the vacancy rate.
Vacancy rate refers to the percentage of units that remain available or unoccupied relative to the total number of properties at a certain period of time. In real estate, the vacancy rate is the percentage of units which are vacant and ready to be rented. This also includes units left by tenants or clients upon their exit or units needing repair or renovation.
The opposite concept of vacancy rate is occupancy. The latter refers to the percentage of units which are already rented and no longer available in the market. Higher occupancy equates to higher rents. If you’re an investor in apartments, you are looking for the vacancy rate and which way it’s moving. The single-family home equivalent is full inventory (how many homes for sale), days on market (how long is a home for sale before contract), and a month’s inventory (if no more homes went on the market, how long the current inventory would last at the current absorption rate).
Analysis of Vacancy Rates
Vacancy rates are very important as a metric to measure the success of the property. To property owners, it is a way to analyze the performance of a given property. Vacancy rates are computed by acquiring the number of total vacant units and dividing it by the overall total number of units within an area then multiplying the result by 100 to obtain a percentage. This percentage should then be added to the occupancy rate, to check that all units are accounted for. The aggregate of these rates must equate to 100. If it does not, there may be something wrong with the equation.
What does high vacancy rate mean?
High vacancy rates suggest that the real estate market is not faring well due to poor rental potential tenants are not attracted to the property. If you have high vacancy rates, consequently, you have low occupancy rates.
What does low vacancy rate mean?
Low vacancy rates generally mean that the real estate market performance of an area is good. They are an indication that a strong demand for rental real estate units exists. However, with higher demand for units comes higher rental fees. Tenants will most likely obtain contracts with a longer rental period to avoid losing the property to another client.
Factors to Consider
Renters and clients must be wary of the certain factors when choosing a property. While the vacancy rate is a good benchmark for the real estate market’s overall health, it is not the only factor that should be looked at. Other vital information to assess are the following:
- Length of time that the property remains vacant;
- Reason(s) of the previous occupant for vacating the unit;
- How the rental rate pars with industry standards;
- Construction projects in the area;
- Other features that add costs related to the property.
For property owners, it is essential to be adept with the latest trends in the housing rental market to improve property performance. A good understanding of the market, rental price changes, and the competitor’s strategies will give any homeowner leverage.
Examining Vacancy Rates in Canada
With so many factors like economic growth, online accessibility and digital innovations affecting real estate trends, vacancy rates are a good indicator of offer a simpler way of looking at an area’s real estate performance. Lower vacancy rate means more people are renting out residential and commercial spaces.
In the last three months of 2017, there was a 0.7% decrease in the overall vacancy rate for purpose-built rental units and a 0.3% decreased in overall vacancy rates for rental apartment condominiums according to a report by Rental Market Report for Canada by CMHC.
While this also means higher rental fees, CBRE (CB Richard Ellis) Canada believes that Canada’s real estate market has a potential to go beyond traditional rental standards.
The housing market of Canada remains good this year, but not as resilient as the year before. This is partly due to the fluctuating trend in both sales and rental sectors.
In Toronto, the vacancy rate for a 2-bedroom apartment is 1% with the average unit costing $1,404 to rent. According to the latest CMHC Rental Market Survey in 2017, the city of Toronto has had this rate for 16 years now low vacancy rate at 1.0%, making it one of the nation’s hottest markets.
Vancouver, on the other hand, has a 0.9% vacancy rate, with rent averaging at $1,552. Meanwhile, Calgary’s vacancy rate for a 2-bedroom apartment is relatively high at 6.3% even though it’s been dubbed as the next real estate market waiting to bloom.
For condominium properties, the vacancy rates for both Toronto and Vancouver remain low at 0.7% and 0.6%. Despite a 3.8% vacancy rate in Calgary for a 2-bedroom condominium, many are optimistic that housing behavior will improve as residential units are made available for rent.
Vacancy rates under the Commercial Sector are divided into downtown and suburban office vacancies. With regard to commercial downtown offices, the corresponding vacancy rates are 5% for Vancouver, 3.7% for Toronto and 27.7% for Calgary.
The graph below indicates that, among all downtown offices, Calgary has the highest vacancy rate based on data pulled from the last quarter of 2017. On the other hand, Toronto, being the financial capital of the country with the highest commercial activities, has the lowest vacancy rate.
In terms of suburban offices, the vacancy rate for Vancouver is 9.6% while Toronto has a rate of 14.3% and Calgary at 22.3%.
Calgary continues to have the highest vacancy rates for both downtown and suburban commercial offices as of Q4 2017 according to CBRE. These findings are backed up by the overall real estate market performance of the city characterized by high-interest rates, additional mortgage criteria, and more inventory.
Aggregate vacancy rates are often a good indicator of the overall health of the real estate market with lower numbers meaning higher demand for property and more business opportunities. While residential and commercial vacancy rates in Canada continue to remain low, there are cities like Calgary that record higher numbers. However, these cities are often expected to fare better in the future.
We have compiled data on vacancy rates for all the cities in Canada that data is available for and then developed an interactive data visualization where you can compare cities within a province or provinces against eachother. You can adjust the date filter as far back as 1971 when data was made first available. We have also put together another data visualization featuring the year-over-year changes for each city (sign-up on right-hand side for access). Examine how the vacancy rates change each year on a short-term basis as well as a longer term outlook (3+ years). Then compare to see how they fare compared to other cities within the same region for a wider perspective.