Rent, mortgage interest helped drive inflation
higher in April: Statistics Canada
The Canadian Press
The first increase in annual inflation since its June 2022 peak was driven in part by higher mortgage interest costs and higher rent prices, Statistics Canada said Tuesday.
Mortgage interest costs were up 28.5 per cent in April compared with a year ago as a result of the Bank of Canada raising interest rates at a breakneck pace over the past year. That's up from 26.4 per cent in March and 23.9 per cent in February.
“That’s the sharpest increase we’ve seen recently,” said Kiefer Van Mulligen, economist with The Conference Board of Canada
Mortgage payments have spiked as Canadians are forced to renew mortgages at current high interest rates, he said.
“It's a trend that will probably continue as mortgages are renewed at the higher prevailing mortgage rates,” Van Mulligen said. “As a bigger share of mortgages are renewed at higher rates, mortgage interest writ large for Canada will go up.”
Meanwhile, inflation for rent was 6.1 per cent year over year, up from 5.3 per cent in April.
That's despite overall shelter costs rising at a slower pace in April, at 4.9 per cent.
“Rent prices are also climbing and that’s probably related to the same phenomenon,” Van Mulligen said. “Housing affordability is deteriorating because mortgages are more expensive.”
According to Rentals.ca, average advertised rental prices in April were up 20 per cent from pandemic lows in April 2021. Average rents across Canada were up 9.6 per cent compared with April 2022.
The year-over-year increase in the homeowners' replacement cost index also slowed for the 12th consecutive month, which Statistics Canada says reflects a general cooling of the housing market.
A report by RBC Economics says shelter was the largest contributor to headline inflation in April, accounting for a third of the growth.
The Bank of Canada has been aggressively hiking interest rates in order to tame high inflation. Yet, in a paradoxical twist, higher interest rates have pushed up housing costs, contributing to higher inflation this month.
For example, excluding mortgage interest costs, inflation rose by 3.7 per cent in April compared to the same month last year. With mortgage costs included in the consumer price index, inflation was up 4.4 per cent.
The central bank’s interest-rate hikes have come full circle, feeding back into inflation even though other key drivers like commodities have been coming back down, said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a note.
However, RBC said year-over-year mortgage interest costs are expected to start slowing because of the central bank’s pause on interest rate hikes.
But as for rent, high demand for rental housing could keep prices up. A March report by RBC said Canada's shortage of rental housing could quadruple by 2026, and the fierce demand for rental units has been driving record rent increases.
The higher housing costs come despite house prices declining slightly.
The Canadian Real Estate Association said Monday the actual average home price in Canada reached roughly $716,000 in April, down 3.9 per cent from April 2022.
— With files from Brett Bundale
This report by The Canadian Press was first published May 16, 2023.
RioCan REIT saw strong Q1 retail occupancy levels, rent rates ticking up
, The Canadian Press
RIOCAN REAL ESTATE INVST TR (REI-U:CT)
REAL-TIME QUOTE. Prices update every five seconds for TSX-listed stocks
The chief executive of one of the country's most prominent commercial landlords says retail occupancy levels and rent rates are ticking up even as many storefronts across Canada sit empty.
Jonathan Gitlin of RioCan Real Estate Investment Trust says retail committed occupancy across his company's portfolio edged up to 98 per cent in the first quarter of the year from 97.4 per cent in the same period a year ago.
Rent per square for new leasing during the period ended March 31 was $28.57, down from $31.40 a year ago, but up from $24.10 in the prior quarter.
The first quarter’s rent per square foot was even higher than the average net rent per square foot of $21.13 that it saw across the rest of its portfolio, he added.
"These exceptional occupancy levels...continue to be driven by intense demand for RioCan's quality retail space, the sort of retail space that simply put is in a short supply," Gitlin said on a Thursday call with analysts.
His remarks came a day after his company revealed its net income for the first quarter amounted to $118 million, down from $160 million a year earlier.
The Toronto-based company attributed the drop to a fair value loss on investment properties which compared with a fair value gain a year earlier.
Revenue for the quarter reached $279.5 million, down from $294.0 million a year earlier, while fair value loss on investment properties was $17.4 million, down from a gain of $35.4 million during the same quarter in 2022.
Funds from operations totalled $131.3 million, or 44 cents per diluted unit, up from $130.6 million a year ago, or 42 cents per diluted unit.
RioCan's portfolio during the quarter was made up of 191 properties, including retail, office and residential space.
Much of it is comprised of "necessity-based retail anchor tenants," including 19.3 per cent grocery, pharmacy and liquor retailers, 14.1 per cent essential personal services and 10.7 per cent value retailers.
RioCan also had 13 spaces leased by Bed Bath & Beyond, the home goods retailer whose Canadian arm is winding down operations after going into bankruptcy protection in April.
There was "immediate and pronounced" demand for the locations, which made up less than one per cent of RioCan's revenue, Gitlin said.
Tenants expressed interest in all the properties almost immediately, but many chose to "take a more secure route" and "snapped up" 10 of the sites from the receiver who ran an auction to sell off Bed Bath & Beyond's assets.
"Retailers were unwilling to risk losing these sites," said Gitlin.
For his company, there was "the ability to fill the spaces with strong tenants, zero downtime and no outlay of capital."
As for the three sites that weren't secured at auction, Gitlin said his company recently finalized a lease for one and is the final stage of negotiations to secure tenants for the remaining two properties.
The tenants are "predictable," he said.
"They are very much strong existing incumbent users within the Canada retail landscape," he said.
"They covet that sort of 20,000 square-foot box and they won't be a surprise to you when we can announce them."
Earlier in the month, Putman Investments Inc., which bought Toys "R" Us' Canadian operations, HMV and Sunrise Records, announced it is opening a new home store retailer in 21 former Bed Bath & Beyond and BuyBuy Baby locations.
Canadian Tire Corp. Ltd. is also acquiring 10 former Bed Bath & Beyond leases to expand its Mark's and Pro Hockey Life banners.
This report by The Canadian Press was first published May 11, 2023
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