Endemic substance use has impaired appreciation. Cheap single family homes and expensive rents present opportunities for profitable conversions and multi-family developments.
Overview
The Byward Market presents opportunities for contrarians to invest in an inexpensive central neighbourhood that renewal has passed over. Property values are low while rents are among the highest in the city. Consequently, cash flow positivity is achievable with a smaller upfront investment.
Crime and poverty have a special relationship with the Market. Because of that relationship, Lowertown investments are differ from others in the core. As such, investors should ensure they thoroughly understand how crime and poverty are infixed in the Market and how they shape the opportunities there.
To help investors gain a complete understanding of the neighbourhood, the relevant data has been curated here and paired with insight and analysis from investment real estate expert John Castle.
Neighbourhood at a Glance
| Ottawa | Byward Market | |
| Average Capitalization* | 4.6% | 7.6% |
| Real Appreciation Since 2010* | 38% | 50% |
| Average Credit Rating | 759 | 735 |
| Crime Rate | 4.9% | 48.5% |
| Vacancy | 1.8% | 5.7% |
Operating Income from Investment Properties in the Market
The nightlife in the Byward Market is the most vibrant in Ottawa. For those who want to live near nightlife, there are no substitutes. In this way, properties in the Market have a monopoly. That monopoly is reflected in the rents, which are among the highest in the city. However, vacancy rates and turnover are also notably higher. Consequently, it is more expensive to tenant large multi-family properties. Investors are advised to consider those costs in their projections.
How much is rent in the Byward Market?
The median rent in the Byward Market is 12% more than the median rent in Ottawa* (October 2019). Rents are highest near the entertainment district.Demand for rentals in the entertainment district has increased sharply. Compare the 2019 median rents to the 2018 numbers.
Data: Q3 2019 median 2-bedroom rent.
How often do tenants turnover?
Tenants turnover quickly in the Market. The one year (left) and five year (right) turnover rates are listed here.
Even for a neighbourhood with younger residents, turnover in the Market is comparatively fast. Consider the following turnover rates of 25-34 year old tenants.
The rate of tenant-initiated turnover correlates with the neighbourhood crime rate. So it is no surprise that turnover is fastest near the entertainment district, where crime is more prevalent. For the investor, turnover has mixed effects: Re-letting apartments requires additional effort or expense. However, it also provides an opportunity to increase rents beyond what the Province would permit if the apartment had been continuously occupied. As such, higher turnover engenders higher future rents.
What is the vacancy rate?
At 5.6%, the vacancy rate in the Byward Market is over three times greater than Ottawa’s vacancy rate.
Crime engenders tenant turnover, which engenders vacancy. As such, it’s no surprise that the entertainment district (and its immediate periphery) has the neighbourhood’s highest rates of crime, vacancy, and turnover.
Cap rates of Investment Properties in the Market
The average gross capitalization rate in the Byward Market is 50% higher than the average gross capitalization rate within the urban boundary of Ottawa.
Demand for rentals in the entertainment district has increased sharply. That increase has pushed rents up 15% last year (compared to 5.8% for Ottawa), which has helped to preserve cap rates in the neighbourhood despite double digit appreciation in 2019.
Prices of Investment Properties in the Byward Market
Multifamily property prices
On a per-unit basis, the median sale price of a purpose built habitable multiplex is 19% less than in Ottawa overall.
Single family homes
The median sale price of a single family home in the Byward Market is 18% higher than elsewhere in Ottawa. Proximity to the entertainment district adds some value to single family homes, but for demographic reasons, the uplifting effect of that proximity doesn’t affect single family homes as strongly as it affects multifamily properties.
Prospective Tenants: Statistics & Insight
Although unaffordability is high, residents of the Byward Market reliably pay their rent. Thorough background checks should all but eliminate risk.
Do tenants miss payments?
In so much as credit scores indicate reliability, the data suggest that residents reliably pay their rent. The average TransUnion credit score, for neighbourhood residents, is 735. In comparison, the average score for the city is 759, and 655 for all of Canada. 735 is within the high end of the range deemed ‘good’ by most scales. .
It may be tempting to chalk up the lower credit score to some correlation between credit scores and rental housing. In Ottawa, that correlation is not especially clear. The average credit score in many of the neighbourhoods where rental dwellings are prevalent is within a single percent of the city’s average.
Relative to socioeconomically similar neighbourhoods, credit scores in the Byward Market are excellent:
Are tenants able to afford their units?
Affordability in the Byward Market is the lowest in Ottawa. Affordability is especially bad near the entertainment district. Consider the following median incomes of renting households.
In the entertainment district, household income is 23% lower than elsewhere in the Market. However, rents there are 10% higher. Consequently, the CMHC deems 15% fewer units to be affordable by their occupants.
The affordability statistic includes subsidized units. There are twice as many subsidized units in the residential part as there are in the entertainment district. Consider the following ratios of subsidized units to unsubsidized units.
How can I ensure that I get good tenants?
Do all your homework. Check credit; get proof of current employment, and proof of current, and previous, income; call the applicant’s current, and previous, employers; call the applicant’s current, and previous, landlords. Verify that the reference contact information they provided was in fact their actual landlord or employer: check land registries, call the number on their employer’s website (not the one provided), and so on. Alternatively, you can check with your property manager to ensure that she’s taking these steps in screening tenants. Alternatively, some real estate brokers (e.g. yours truly) offer this service add a no-charge value add for their investor clients.
If you’re renting to students, obtain as much of the foregoing as possible as well as a guarantee, and credit check, from a full-time income earner (e.g. their parents).
Supply and Demand for Rental Units in the Byward Market
Cap Rates of Income Properties in Ottawa
As discussed above, the vacancy rate in the Byward Market is 5.6%, which is three times higher than the vacancy rate in Ottawa, which is 1.8%. The vacancy rate in the Market is also multiples higher than other high rent neighbourhoods. However, the vacancy rate seems to be a product of turnover (rather than a lack of demand): Finding good tenants takes time - especially in neighbourhoods where rents are high relative to the income of the people who want to live in those neighbourhoods.
Is there new supply coming online?
None whatsoever. There have been no new housing starts in the last two year. No units are currently under construction. In contrast, Vanier, a gentrifying but socioeconomically similar neighbourhood, has seen 105 apartment starts this year; there are currently 171 apartments and 14 homes under construction in that neighbourhood.
How many residents rent their house or apartment?
Residents of the neighbourhood are twice as likely to rent their dwellings as residents of the city are: 68% of the Byward Market residents reside in rented dwellings vs 34% of Ottawa residents.
Appreciation of Real Estate Investments in the Byward Market
How quickly are properties in the Byward Market appreciating?
Over the last decade, appreciation in the Market has lagged the city. Moreover, real estate tends to appreciate faster in the core. When we compare real estate in the Market with other neighbourhoods in the core, that lag is more pronounced.
Subsidies are not factored into the rent data. As such, among unsubsidized units, unaffordability may be more severe than the data suggest.
Data: Prevalence of subsidized units.
Appreciation Accelerators and Decelerators
Salvation Army relocation
The exit of the Salvation Army from the neighbourhood will remove 169 (31%) of the emergency beds from the core. The Shepherds of Good Hope will continue to manage its 120 beds; The Mission will continue to manage its 256 beds. The remaining 545 (69%) are managed by the Shepherds of Good Hope.
Notably, the Mission is 650 meters from the residential part of the Market. The exit of the Salvation Army will cut the number of emergency beds adjacent to the residential part of the market by 58%.
Consequently, any uplifting effect on property values will likely be most pronounced in the residential part of the Market.
Subsidized housing to remain
That said, to whatever extent poverty in the neighbourhood engenders crime, the reduction in crime may not be proportional to the reduction in shelter beds, as the subsidized rental dwellings will remain in the neighbourhood. The ratio of subsidized to unsubsidized dwellings is 70% higher in the Market than in Ottawa overall. It is nearly 100% higher in adjacent Lowertown. The City’s plan to curb homelessness includes more subsidized housing units. There is little reason to expect a reduction in the number of subsidized units in the Market.
In short, the exit of the Salvation Army will likely significantly reduce the prevalence of extreme poverty near the residential part of the neighbourhood but the Market will remain a high poverty neighbourhood.
Safe injection sites
Three of the four supervised injection sites in Ottawa are located in, or within 50 meters of, the Byward Market:
179 Clarence: Ottawa Public Health
230 Murray: Ottawa Inner City Health
221 Nelson: Sandy Hill Community Health Center
In July 2019, the Shepherds of Good Hope received $2 million in funding to replace their portable safe injection site on Murray St. with a permanent facility, which will include two additional injection booths, to make 14 in total. The facility is the only 24 hour safe injection site in the City.
The Province had decided to defund the Clarence Street supervised injection site. However, the Federal government has stepped in to fill the funding gap.
Additional funding for rehabilitation facilities
On a per-capita basis, there are more rehabilitation facilities in, and around, the Market than there are in any other Ottawa neighbourhood. Three of them are paired at the safe injection sites. However, there is an additional site, Bruyere Renaissance, located at 162 Murray Street. Additional funding was granted to each site in 2019.
How to Find Investment Properties in the Byward Market
Look at the listings
Just about everyone who's really ready to sell is going to have their property listed on realtor.ca. Classified websites like Kijiji and Facebook Marketplace are useful for a few opportunities here and there.
Sleuth for off-market options
Ultimately, if you can’t find what you’re looking for in the listings, then you may need to adjust your expectations (this is often the case) or you may need to find the opportunities yourself. Call around, do some detective work, and you’ll learn about what's coming up.
There’s an enormous contingent of investors who would be willing to sell if a reasonable offer were to come to them, but who don't want to be bothered with the hassle of months of showings and tenant interruptions. Networking and detective work are the best way to find these investment options.
Alternatively, build a relationship with a well connected investment real estate agent who has already done the sleuth work. Since multi-family properties are a major focus in my practice, I spend a good portion of my time networking and calling in order to build a database of who owns what and who’s in the mood to sell. Many investment-focused agents are doing the same.
Summary
The management challenges related to the Byward Market’s socioeconomic issues are more pronounced than elsewhere in the city. Nevertheless, diligent managers will have no difficulty guarding their investments against those challenges. It seems likely that poverty and crime will continue to weigh on appreciation. However, there are excellent investment options throughout the neighbourhood. For assistance locating and acquiring a superior investment in this neighbourhood contact John Castle or another expert investment real estate advisor.
