Alberta’s recent recession is still on the minds of people throughout the province. As it’s likely to go down as the worst yet that the province has experienced, it’s no wonder people can’t stop talking about it; neither can investors.
With little economic activity, we’ve seen investors of all sorts pull out of the Alberta economy and find stability elsewhere. Meanwhile, real estate investors have not been untouched. The challenges associated with running a successful multi-family property have only intensified as tenants lose jobs and income.
A Brief Overview of Alberta’s Most Recent Recession
Throughout this downturn, Albertans have experienced a tremendous amount of unease. Many industries suffered (more so oil and gas), jobs were lost, and the housing market fell while vacancy rates increased. According to a report from TD Economics, Alberta’s GDP hit a 6.5 percent loss since the recession first started. To put that number in perspective, that's twice the magnitude of the past four downturns to hit the province.
What the Future Holds
Alberta’s economy has hit rock bottom, and we are now seeing some form of economic activity. The price of oil is getting better, and there's nowhere to go now but up. TD Economics is forecasting an Alberta GDP gain of about 2.3 percent for 2017-18. Job opportunities are beginning to emerge once again, as the oil patch is slowly hiring more workers to replace the ones who were laid off. In terms of the real estate market, though, there are still interesting times ahead for the province.
While some parts of the province’s economy are picking up steam, the declining trend of Alberta's housing market is still not over. We’re sad to say it, but it will not bounce back fast. Once a region's economy has picked up, its housing market lags behind for another 18-24 months. While businesses are seeing better days than the gloomy ones in the past, homeowners aren't so lucky. If you look at multi-family properties, this lagging indicator is even longer. Its economic recovery can be delayed another 6-18 months after the housing market one. All things considered, it can be between two to three years from now before multi-family building activity picks up again.
How Investors Can Prepare for the Climb
If you were an investor that was watching the state of Alberta’s economy and prepared yourself accordingly, you should be in a good place right now. You have deeper pockets and have some cash put away to maintain your properties during this recession. What’s left for you to do now is maintain a healthy building from a maintenance and vacancy prospective. At this point, you shouldn't be worrying about ROI. You can focus on that once again when the housing market has picked up again.
If you weren't prepared for this downturn or ignored the signs of this recession, you have some catching up to do. You may be struggling with a limited cash flow, so it's not a bad idea to look for partners to get that cash influx. You can sell them on the idea of investing now, and then seeing better returns in five years when the market has stabilized. If your partner invests for a five-year term, you can bring the building to a healthy point and normalize it in two years. When the five-year mark comes around, there will be a huge opportunity for a great ROI.
We are slowly, but surely, starting to see a revival of our province’s economy. However, it will be some time before we see a pickup in the multi-family housing industry. Until we are once again full force, investors need to carefully plan their next move depending on how well prepared they were for this recession.