Tenant needs are always motivating factors behind any rental property. If tenant needs (quality, amenities, space, location, etc.) aren't met, well, you won't have many full units. Fulfilling tenant needs while meeting your own will help make your property more successful.
Causes of the Shift
The main cause of the shift we are currently seeing is in large part due to the recession. Edmonton has been affected by this poor economy, and its residents are feeling the crunch. While the province as a whole currently sits at an 8.1% unemployment rate, Edmonton's is a touch lower at 7%. As a result of this high number, Edmontonians have had to adapt to new financial realities.
In an effort to live within their means, residents are looking for amenities and ways in which they can save money. This line of thought is transferring to their primary places of residence. With current market conditions the way they are, people are either downsizing, leaving the province, or moving to a cheaper neighbourhood. This relocation comes with additional needs.
As saving is on the forefront of almost everyone's minds, tenants, while looking for cheaper neighbourhoods, are also looking for apartments and condos close to public transportation. If bus stops or LRT locations are close, residents can save that much more on gas commuting to and from work, friends, and family. Multi-family housing complexes that offer great transportation access will be the most attractive for these financially-strained tenants.
What Does this Shift Mean for Investors?
This impending shift means investors will need to keep tenant needs in mind if they decide to purchase additional multi-family properties. Tenants with little cash won't be able to afford luxurious, jaw-dropping units with upgrades as far as the eye can see. While some upgrades may be nice, these tenants would be more willing to forgo extravagancies in order to save money.
For investors that are currently looking to add to their real estate portfolio, they will not have a hard time finding multi-family buildings that meet these few tenant requirements. The inventory of multi-family properties is high and so are vacancy rates, which means it will be easier for investors to find a complex in a cheaper neighbourhood with access to public transportation.
Within the next five years, this shift will reflect the prices and availability of rental units in these locations. Buying a multi-family building in a cheaper neighbourhood during this time frame will be more expensive as it will see a great deal of success. The same goes for availability. If a property does become available, there will be some stiff competition for it, which could result in bidding wars. In five years, we may also see construction in these locations for newer, higher end units as the economy strengthens.
If you are an investor right now, you're in a buyer's market. Competition is low, inventory is high, and prices are reasonable to low. Now would be the time to scoop up a property that meets these shifting tenant needs. You will have little competition from other investors to purchase the property, and you'll have more room for negotiation. If the building requires some upgrades, it will be cheaper for you to renovate it now, too.
If your multi-family building doesn't meet the needs and wants of your demographic, you won't have a successful property. It would be a good idea to start planning your future steps carefully for this coming shift. Pick your location with these needs in mind, and plan your next multi-family purchase accordingly.