2024 Market Commentary and 2025 Outlook

Published On: March 25, 2025 Categories: Viewpoint Market Commentary

2024 Market Overview

In the first half of 2024, the Bank of Canada’s (BoC) policy interest rate held steady at 5.0% as it continued its fight against high inflation. However, slowing economic growth and inflation measures soon made it clear that cuts could be implemented by mid-year. The central bank delivered five consecutive rate cuts in 2024, reducing its policy rate to 3.25%, at the high end of the agency’s neutral rate estimate.

Canadian inflation continued to moderate at the beginning of the year. Marking a critical turning point, headline inflation fell below 3.0% in Q1’24 and reached the BoC’s target level of approximately 2.5% by mid-year. By the end of 2024, inflation had fallen to under 2%, signalling that it was comfortably under control, leaving room for further rate cuts.

The federal government took steps to reduce population pressures in Canada’s housing market. The government announced a reduction in temporary residents to 5.0% from 6.5% of the total population over the next three years and a further reduction on new international study permits. Revised 2025- 2027 immigration targets could still bring up to 1.14M new permanent residents and 1.7M new temporary residents.

After two years of record rental growth, the average asking rent across Canada fell 3.0% annually in 2024. Purpose-built rents remained stable with a 0.3% Y/Y increase as house and townhome rentals (-7.4% Y/Y) and condominium apartment rentals (-5.2% Y/Y) adjusted lower amid shifting market conditions.

Helping to explain this dynamic, the Greater Toronto and Hamilton Area saw a record number of condo completions, increasing inventory by 29.8k units in 2024. Purpose-built rental completions in the region totalled 5.5k units, nearly on par with 2023’s recent high.

Housing starts across Canada — and in urban centres — increased 2.0% compared to the previous year. Record rental apartment construction and activity in rapidly growing markets like Edmonton, Calgary, and Montreal contributed to Canada’s third-strongest year for starts. However, the pace of construction remains far below levels necessary to accommodate population growth.

On the policy side, a new federal budget introduced measures to increase housing supply, particularly rentals, and 30-year mortgages for first-time homebuyers. Coupled with lower interest rates, the moves have helped to spur more transactions.

Portfolio Update

The Equiton Residential Income Fund Trust (the Trust) expanded its portfolio at the fastest pace since inception with a total of nine property acquisitions in 2024. In Q2’24, the Trust made a strategic entry into the Niagara Region with the purchase of four rental apartment buildings comprising 388 units in Welland, Ontario. This purchase pushed the Trust’s AUM over $1 billion. The Trust then added a four-building portfolio spanning North York and the exclusive Toronto borough of Forest Hill in Q3’24. Its final purchase of the year — a newly built, 277-unit rental complex in Edmonton — represents the Trust’s third property in Western Canada.

The transactions aligned with the Trust’s strategies for continued growth and geographic diversification. Supported by prudent financial practices, the Trust was well-positioned to capitalize on opportunities offered by reduced competition in the market.

While growing the portfolio, the Trust also made strides on its commitment to environmental, social, and governance (ESG) practices. Last year, the Trust continued its building renovation program with a focus on energy-saving projects, such as water-system upgrades, and property modernizations. As well, the Trust expanded the team of its property management arm, Equiton Living, and implemented comprehensive customer service training for all on-site employees. The success of these initiatives, along with other programs aimed at enhancing Residents’ communities, was recognized with nine 2024 SatisFacts Resident Satisfaction Awards.

In Ottawa, construction of the 294-unit first tower of the Maison Riverain development project is being prepared for rental occupancy in Q2’25. The next phase of the project — the second tower — received Site Plan Approval and is expected to enter construction in Q1’25. When complete, the three-tower project will total more than 1,100 suites. Ottawa remains one of Canada’s most resilient rental markets, continuing to post rental growth despite record purpose-built rental completions.

Performance

Market-driven conditions saw the portfolio’s average cap rate appreciate to 4.48%, up 31 basis points from the previous year, but negative impacts on value were fully offset by solid NOI growth of 22.8% ($6.1M) Y/Y. This growth reflects an annual revenue increase of 23.2% in addition to the Trust’s new acquisitions. Management remains committed to growing capital and maintaining costs at competitive levels.

The Trust’s diversification across key Ontario and Western Canadian markets with strong underlying fundamentals contributed to a 3.6% Y/Y increase in market rents. The portfolio experienced a turnover of 18.0% — yielding opportunities for organic growth through the Trust’s capital expenditures program — as occupancy reached 97.6%, above the national average of 96.4%. The Trust’s revenue gap to market ended the year at 30.9%, signalling strong potential for future growth.

Through an extensive utility savings program and ongoing implementation of sub-metering, the Trust lowered same store water and energy (natural gas, hydro) consumption by 4.4% Y/Y and 2.9% Y/Y, respectively. These and other capital improvements have had a direct impact on Resident satisfaction, which increased 8.1% Y/Y according to third-party surveys.

Looking ahead to 2025, Management remains committed to unlocking new opportunities in core markets while actively managing existing assets to maximize long-term value.

2025 Market Outlook and Portfolio Strategy

The multifamily sector’s ongoing resilience and sustained demand continue to support investor sentiment. The BoC’s interest rate cuts have positively impacted Canadian real estate.

Although inflation appears stable, Canada’s lagging economy provides the BoC with room to continue reducing rates into more stimulative territory before likely stabilizing in the second half of the year. Further cuts are expected to improve financing conditions and boost real estate transactions, with property cap rate compression anticipated as the lagging effects of lower rates take hold.

The normalization of borrowing costs and ongoing population growth continue to support rental market fundamentals. Despite lowering permanent and temporary resident targets, the federal government expects to welcome nearly 3M immigrants over the next three years.

Following two years of record rent growth across Canada, rents have moderated slightly in markets with exposure to foreign student residents and an influx of new condominium supply. As rental growth recovers — and with occupancy rates above their long-term average — price increases are likely to be most evident in these urban markets.

Momentum in housing policy remains strong amid upcoming Canadian provincial and federal elections. Governments at all levels have demonstrated a willingness to work toward faster development approval timelines and lowering development costs. However, despite record rental and condo completions across Canada in 2024, housing supply is expected to remain tight.

With capital availability set to improve, Canadian real estate firms are entering 2025 with a stronger appetite for transactions, building on the momentum gained in late 2024. Increased activity could see more firms step off the sidelines in the multifamily space. Meanwhile, land deals are expected to pick up in the second half of 2025 as sellers adjust their expectations to meet market conditions. Large- and medium-sized firms better able to navigate a challenging economic environment appear best positioned to capitalize on transactions this year than smaller firms, which have reported a significantly lower outlook for acquisitions and divestments.

Transactional activity remains strongest among value-add rental properties, where investors stand to gain significant operational upside. Newer product remains more challenging to underwrite, with rental rate softening limiting near-term rent growth assumptions. This has led to a widening value expectation gap between buyers and sellers, making new-build transactions more difficult in early 2025. However, value-add investments are expected to see continued transaction success, given their strong positioning within the current market cycle.

With a focus on value-add properties and capturing gap to market, the Trust remains focused on expanding its presence in key markets, with ongoing growth in secondary Ontario regions like Guelph and continued progress on the Riverain project in Ottawa.

Additionally, investment efforts are shifting westward, particularly toward British Columbia, where reduced competition for capital has created new opportunities. On the financing front, strategic mortgage conversions have strengthened the portfolio, with 97% now CMHC-insured, ensuring long-term stability and cost efficiency.

Looking ahead, interest rates are expected to stabilize in the lower neutral range (2.5%-3%) by year-end 2025. Persistent supply shortages in the GTA and other major markets will continue to drive upward pressure on rental and for-sale housing prices in the coming quarters and years, as declining housing starts to translate into a deeper supply deficit. While political uncertainty remains a factor, favourable policy shifts could accelerate recovery in the latter half of the year. The Trust is well-positioned to capitalize on these conditions through strategic acquisitions and prudent financial management.

Find Equiton’s previous quarterly report here: Q3 2024 Commentary and Outlook – Rate Cuts Spur Rise in Multifamily Activity

Forward-Looking Information

Certain information in this communication contains “forward-looking information” within the meaning of applicable securities legislation.

Forward-looking information may relate to future events or the Trust’s performance.

Forward-looking information includes, but is not limited to, information regarding the Trust’s distributions, growth potential and volatility, investor returns, ability to achieve operational efficiencies, objectives, strategies to achieve those objectives, beliefs, plans, estimates, projections and intentions; and similar statements concerning anticipated future events, results, circumstances, performance or expectations and other statements that are not historical facts. These statements are based upon assumptions that the management of the Trust believes are reasonable, but there can be no assurance that actual results will be consistent with these forward-looking statements.

Forward-looking information involves numerous assumptions, known and unknown risks, and uncertainties that contribute to the possibility that the forward-looking statements will not occur and may cause actual results to differ materially from those anticipated in such forward-looking statements. Some of these risks are discussed in the section “Risk Factors” in the Offering Memorandum. These forward-looking statements are made as of the date of this communication and the Trust is not under any duty to update any of the forward-looking statements after the date of this communication other than as otherwise required by applicable legislation.