Real estate in Quebec: The rental market in 2023
Dans les dernières années, le marché immobilier au Québec (ainsi que le marché locatif) a beaucoup changé et ça n’a pas été de tout repos! En 2022, on a d’abord assisté à une flambée des prix des maisons et des biens immobiliers en général, puis à une forte hausse des taux d’intérêt. On arrive en 2023 dans un contexte d’incertitudes économiques donnant lieu à de nouveaux défis, tant pour les investisseurs que pour les property owners and managers.
In this article, we will take a closer look at the state of the real estate market in Quebec as well as the challenges that await property managers in the rental market of 2023.
A Slowing Real Estate Market in 2023
From 2010 to 2019 we were in a balanced market and then moved into a seller's market since around 2021. Although it's difficult to make predictions in a volatile market, experts believe we are slowly heading towards a balance in 2023.
After the overheating of spring 2022, the real estate and rental market in Quebec continue to experience a slowdown in 2023. Several factors contribute to the continuation of this slowdown such as:
- The increase in mortgage rates;
- A drop in the purchasing power of Quebecers caused by inflation;
- The instability of the market which makes investors cautious;
- Delays in the construction of new residential projects.
These various factors represent a challenge, both for real estate investors and for rental managers who must adapt to this new reality.
Rental Market Profitability, a Major Challenge in 2023
Profitability is a major challenge faced by owners of rental and commercial properties, as well as investors looking to increase their housing stock.
Several factors are involved:
Bank of Canada Policy Rate
In a few months, in 2022, the Bank of Canada's key rate jumped from 0.25% to 3.75% to reach 4.50% in January 2023. A higher mortgage rate directly affects the profitability of rental properties.
Inflation
Inflation measured by the overall CPI in Canada is valued at 6.3%, according to the Bank of Canada (source Banque du Canada). This results in higher material costs, higher labor costs and lower purchasing power. This means that maintaining a rental property is more expensive than before, again reducing the profitability of the latter.
As the construction price index is on the rise, we are therefore witnessing a drop in real estate investments ( source Statistique Canada).
Housing Crisis
Quebec is facing a housing crisis with a vacancy rate below 1% in several regions such as the island of Montreal. As purchasing power declines, affordable rental housing is scarce. This can give rise to several issues affecting profitability, such as overdue payment (or non-payment) of rent by tenants. Given the scarcity of affordable housing, it can be difficult for building owners to increase rental prices enough to cover rising rates and building maintenance costs.
Perspectives for Commercial Real Estate
The marché de l’immobilier commercial a aussi changé dans les dernières années. Avec la pandémie est arrivé le télétravail qui demeure une pratique forte sur le marché du travail. De plus en plus de bureaux sont vacants et, lors des renouvellements, plusieurs entreprises abandonnent leur espace commercial.
It is estimated that one in four offices will be vacant by 2025.
Top 3 Challenges for Property Managers in 2023
Property managers face several challenges in 2023. These are the result of rapidly changing industry and market conditions. Here are the 3 main obstacles that these professionals could encounter.
Digitalization
Digitalization has transformed the real estate sector. It represents both an opportunity and a major challenge for rental managers. On one hand, they have more access to digital tools to help them manage their assets, but on the other hand, this digital transition requires them to adapt quickly and develop new skills to remain competitive on the market.
They must now master online platforms, mobile applications, integrated management systems, etc. If they can adapt, property managers will be able to take full advantage of the opportunities offered by digitalization.
The Real Estate Slowdown
The real estate slowdown is also impacting property managers daily lives. The decline in rental demand and real estate transactions reduces the volume of properties to manage. Faced with these challenges, property managers must double their efforts, innovate, and adapt to preserve their activities’ profitability and customers’ satisfaction.
Maintain Low Costs to Achieve Profitability Objectives in Rental Management
With inflation, keeping costs low to achieve profitability goals in rental management is a complex challenge for property managers. Maintenance and renovation costs, administrative and legal costs, as well as employee compensation are constantly increasing expenses. A balance must be found between reducing expenses and ensuring quality service.
