COO outlines what his firm is doing, from tenant attraction to AI-assisted renovations
RBC projects that by the end of 2026, the vacancy rate for apartments in Canada will exceed three per cent for the first time in a decade. Population growth has slowed significantly due to restrictions on immigration. As well, a significant amount of new purpose built apartment rental supply has come online. More vacancies mean competition for tenants, means falling rents in Canada.
While renters might be celebrating this news, apartment REIT investors are feeling a bit of trepidation. Macro trends may be one force shaping the outlook for REIT investment right now, but more micro-level factors can have a significant influence too. Jonathan Fleischer, Chief Operating Officer at Equiton Living, the property management arm of Equiton responsible for the properties in Equiton’s flagship apartment fund. Fleischer explained how he and his firm see this trend in apartment rents. He outlined how different locations, building types, and management styles are resulting in a more bifurcated market environment and highlighted the signals of quality management that advisors can look for now.
“We’re seeing this as a cyclical recalibration more than a structural shift. We do feel that the underlying multifamily fundamentals remain firmly intact,” Fleischer says. “I think you’re seeing this with the kinds of acquisitions that are being made in the broader market. The people with the longer term view are investing very heavily in multifamily now. Performance is being driven by occupancy stability, turnover, execution, leasing discipline and responsive management. As property managers, that’s what we can control. We cannot control the broader market and supply and demand.”
Fleischer notes that the steepest rental drops he sees are in the biggest urban markets, notably Toronto and Vancouver. Those are the cities that saw the steepest rent increases in the leadup to this correction, and the cities that had the highest concentration of new rental housing supply come on recently. It’s those new rental units, too, that are experiencing bigger drops in rent prices. New built units with modern amenities, constructed under the assumption of 2024 rent levels, simply can’t get what they’re asking for.
Fleischer contrasts that with Equiton’s own properties, which tend to be legacy buildings with more moderate asking rents. Those unit types, especially when well managed and updated frequently, tend to have strong tenant retention. When a tenant does leave, especially one that has been in occupation for many years, the unit can usually still command a higher price than that tenant had been paying, even if it is a softer market.
That is not to say Equiton and companies like them haven’t faced challenges in this market. Fleischer notes that his firm is having a more challenging timeattracting new tenants when units come available than they did in recent low vacancy years. He says, though, that they’ve put more effort into tenant attraction and tenant satisfaction, all of which is resulting in improvements in their leasing and the continued generation of net operating income (NOI) in their portfolios.
Fleischer attributes this resilience to his firm’s property management. Their focus on those more affordable buildings has meant they play in a more inelastic market with fewer price swings. They also have added a suite of new technologies to their management. For instance, when a tenant leaves Equiton will update and renovate the unit. Their new property management software can calculate, to the centimeter, how much baseboard trim they need to purchase to update that unit. It can also tell the management team what the impact of those renovations could be on NOI and what the return on investment (ROI) will be for that upgrade. Profitability can be safeguarded while updates and upgrades continue to be made.
Looking at the wider apartment REIT market, Fleischer sees a new division taking shape. He believes the market is likely to segment along lines of affordability, asset vintage, and operating quality. More modest, more affordable, and older properties may show greater resilience while newer properties come to struggle more, especially if they’re not well managed. For advisors seeking to allocate to the correct side of that new asset divide, Fleischer says that certain hallmarks of quality management can be looked for.
“Investors should be on the lookout for consistent outcomes across various market cycles as opposed to performance in a single environment. In 2022 and 2023 it was easier, but it’s the asset managers that are adjusting and really working hard to deliver results in a more challenged market that stand out,” Fleischer says. “The ability to deliver stable income and protect upside through different conditions is a strong indicator of solid asset management. That means disciplined execution, sustained occupancy, controlled expenses, and effective turnover & leasing management. Those are the fundamentals that ultimately drive durable cash flow.”
