Real estate update

COVID-19: Real Estate Update – August 7, 2020

The following update is based on our ongoing discussions with borrowers and industry peers, but we are ultimately taking direction from the government, financial regulators, and our stakeholders. Our observations continue to evolve, and we are focused on opportunities in every asset class as follows:


During the month of June, low-rise new home sales in the GTA accounted for 1,160 of 1,904 new homes sold. This represents the highest number of June transactions since 2016, according to the Building Industry and Land Development Association (BILD), and was the first time in the last 10 years when June’s low-rise transactions exceeded the number of condos sold in the same month. This is likely a result of pent-up demand following a period of almost no activity in early Q2, and the split between single-family and condo alternatives points to a trend by consumers for less-dense housing options, often further from urban centres.

With respect to multi-family rentals, rental listings have outpaced new leases being signed, resulting in greater apartment supply and a moderating pace of rent growth. We believe a portion of this new apartment supply comes from condo owners who rented out furnished units on a short-term basis (Airbnb) and are now turning to long-term rentals for their furnished units. Average rent for a one-bedroom condominium apartment was down 5% year-over-year in Q2, while the average two-bedroom rent showed a similar decline. Tenants have continued to pay their rents in a timely manner with the help of government assistance. The longer-term viability of rent collection is still uncertain as government relief programs taper off after the summer, but tenants will be motivated to maintain their rents over other discretionary purchases, so we think the values of these assets will remain intact.


As the Province of Ontario has progressed through stage 2 and more recently into stage 3 of reopening, many businesses and offices have brought back employees and the public while following strict physical distancing and protective guidelines. Health officials have reported in the past week that these restrictions could viably be in place even after obtaining a vaccine and could last well into 2021 and perhaps beyond. The COVID-19 pandemic has already introduced a rethinking of office space usage, and large office users, including the Bank of Nova Scotia, are delaying their returns to the office until the new year.

We previously reported that vacancy forecasts are being revised to address these issues, but to date there has been little data to report. It is still impossible to say how drastically absorption will be affected and how much of a drop the office market can expect to see in rental rates.

The retail market continues to be challenged as a result of a precipitous drop in discretionary spending and economic uncertainty, but stores have been reopening with physical distancing measures, and even enclosed malls are reporting better traffic so far in Q3. We will keep a close eye on the service industry as the Province has allowed restaurants to reopen, but it is too early to make any predictions.

We continue to see stability in industrial assets, as warehousing and logistics are being utilized to capacity. Despite the fact that there have been fewer transactions for these properties, the asset values remain strong.

Given the above, Hillmount will continue to take a cautious approach to valuing assets in every sector. We are carefully watching residential real estate values as we underwrite new loans, and we remain mindful of the challenges facing the retail and commercial office markets as a result of Covid-19. We continue to actively pursue opportunities in the First and Second mortgage space, as well as lending against real estate where owners are facing financial issues.

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