- What Low- and midrise multifamily buildings are gaining interest among investors and developers
- Why Lower construction costs and faster rent growth yield higher returns
- What next Renter demand for moderate-density buildings remains strong
Despite high-rise residential buildings taking over the skylines of Canada’s major cities, investors may be showing a preference for moderate-density, purpose-built rental developments, Marcus & Millichap’s IPA division said in a new report.
Rental development is up significantly, with unit completions rising to 85,000 in April on a trailing 12-month basis from 45,000 in 2019. Construction starts have trended similarly, IPA said, with deliveries expected to remain high over the next few years.
The majority of rental housing supply – 57%, as of 2024 – can be found in buildings with fewer than 50 units. These moderate-density developments are now picking up even more interest among investors, IPA said.
“With construction costs rising and vacancy rates climbing over the past year, some residential builders are shifting focus towards low- and mid-rise rental projects,” the brokerage said.
These buildings, from one to 12 storeys, are more cost-effective and “usually yield higher-income returns for owners.” For a residential building less than 12 storeys, the average hard construction cost is $325/sq ft. For buildings more than 60 storeys, that number rises to $425/sq ft.
Smaller buildings can use wood frames or concrete blocks, rather than costly reinforced concrete, and have simpler structural and mechanical systems. With municipal approval processes eating up significant amounts of time, smaller builds tend to be granted approval faster.
Tenant demand for low- and midrise buildings has been strong, IPA said, evidenced by lower vacancy rates and faster rent growth in those buildings. Over the past five years, rents in buildings with three to 19 units rose 34%, compared with 27% in buildings with more than 200 units.
Low- and midrise buildings have historically accounted for the majority of transactions. With slower population growth and increasing apartment supply causing near-term uncertainty, investors may continue targeting more cost-efficient assets, IPA said.
