By The Virtus Advisory Group

The Canadian housing market and where it is headed has been the subject of heated debate among investors and Canadians in general for several years now. With constant cranes going up in Toronto and Vancouver and rock bottom interest rates, it appears as if it shows no sign of slowing down in the near future. Rising home values and ever increasing rent have Canadians wondering if we are in the midst of a housing bubble. In line with this, vacancy rates for rentals across Canada are exceptionally low, particularly in certain parts of British Columbia where vacancy rates have dipped to a record low of 0.3 per cent.

Among the countless stakeholders in this important issue are students of Canadian universities and colleges across the country. As of 2013, there were 950,000 full-time students enrolled in 82 of the largest educational institutions across Canada, a number that has since grown closer to one million. Of these students, approximately 55 per cent attend school outside of their own community, creating a strong demand for student housing. Obviously housing is an important factor in the decision-making process of students and one that is not taken lightly considering the cost. This holds particularly true for international students seeking an education in Canada. In fact, the international student market comprised approximately $8 billion in Canada as of 2014, factoring in both tuition and living expenses. This group accounts for approximately 10 per cent of full-time university students across the country.

Recent developments in student housing

Investors have taken notice of this high demand for affordable student housing. In the “university towns” of Waterloo, London and Guelph, private groups have long been interested in building and developing units for students. It’s logical, given the recurring revenue streams, little risk of a declining demographic and an inelastic supply of land tying the hands of students across the country.

Students are often more willing to rent by the bed as opposed to entire units. This provides further income to property owners as they are able to generate more revenue from a single unit. It is not only private investors who have taken notice to this opportunity but also the universities and colleges themselves.

Wilfrid Laurier University in Waterloo, Ont. has been active in the student housing market since 2012. That year alone it acquired 12 privately owned residential buildings and has made similar acquisitions as recently as 2015. As enrolment rates at the school grow, these assets provide a logical and strong source of secondary income to the school.

As of mid-2013, 9,000 additional beds have been developed for students and this number has surely grown. Yet that hardly accounts for 10 per cent of the student population between WLU and Waterloo University, with a combined population of over 100,000 students. As well, by purchasing land located near campuses, it leaves the door open for further development of classrooms and the opportunity to lease the space out commercially.

The marketplace out west
International Student Enrolment UBCV
International Student Enrolment UBCV

British Columbia has the most expensive real estate in Canada. The real estate market has been booming – in 2015 alone, total dollar volume for the Greater Vancouver area reached a record high $1.55 billion, up 99 per cent from the previous year. Included in this figure is a 79 per cent increase in spending in Vancouver areas such as Granville, the West End and UBC.

Students attending universities such as the University of British Columbia (UBC) have had difficulty finding affordable student housing. With over 6,000 students (both international and domestic) on the waiting list for student residency at UBC, it is clear that the demand for affordable student housing far outstrips the supply currently available. In order to remedy this situation, the university has begun to develop units known as “micro apartments” – small single units, typically around 145 square feet that would cost between $600 and $700 monthly. It is anticipated that UBC will be able to house 3,000 students in these types of units by 2020.

In B.C., the international student market is large and continuously growing. It is estimated that in 2012, there were over 112,000 international students in B.C., while 2014 saw a 20 per cent increase in the population compared to the previous year. Of the $8 billion international student market in Canada, approximately $1.2 billion of it is comprised of students located in British Columbia. This number is expected to double over the course of the next eight years.

The international student community is expected to bring close to $20 billion into the Canadian market by 2022. On a country-wide basis the international student community has grown rapidly from 2008 to 2014 at a rate of 83 per cent and there are currently approximately 336,000 international students across the nation.

Based on this information, it is clear that an opportunity presents itself in the rental housing market. Both domestic and international student numbers keep growing, especially in Western provinces such as B.C. creating a strong demand for affordable but high-quality student housing. UBC is only one of several universities and colleges located in the Greater Vancouver region; however it serves as a good growth proxy for other schools in the area as well.

A case study: CIBT Education Group

The Virtus Advisory Group Inc. manages investor relations for CIBT Education Group (MBA.TO).

Founded in 1994, it is an education management company that operates in a wide segment of the education market. Founded in British Columbia, the company tailors its product to both Canadian and international students. CIBT offers a variety of different programs at its schools located primarily in Canada and China, but also operates subsidiaries in the Philippines and Vietnam. The company has partnerships with schools and programs that range from kindergarten to Grade 12, as well as post-secondary and graduate programs. In addition to partnerships, the company owns and operates its own institutions. Sprott Shaw College, its most well-known and oldest school, has been in operation since 1903 and is recognized across the country as a renowned college. Combined, CIBT Education Group institutions enrol over 7,000 students annually while partners provide access to over 20,000 students worldwide.

CIBT’s educational facilities offer programs to international students from more than 42 countries seeking a Canadian education.

With the supply of student housing being as inelastic as it is, and an ever increasing demand for affordable housing, the company has found themselves on the right side of a supply-demand scenario. To capitalize on this opportunity, CIBT developed the Global Education City Holdings Inc. (GEC) subsidiary to help students find affordable student housing in a good location. It currently owns and operates over 300 beds in downtown Vancouver.

However, this is only the very beginning of what is planned. While GEC is in the process of developing acquired properties into student housing, the division is still looking for further properties to acquire and develop. Currently, there are two operating properties, with another two under construction. They are expected to be fully operational by the end of 2016, generating over 1,000 beds available for rent by the end of 2016.

During the next five years, CIBT plans to scale its asset ownership to well over $1 billion with 10,000 beds available to students from both their own school and other surrounding schools.

While ambitious, it is in line with the expectation of growth from international students and the limited available housing. This goal will primarily be reached with the development of the Education Super Centre – a 300,000-square-foot unit that contains hotel-like student housing options, amenities for residents and space for commercial leasing. The Education Super Centre, like all currently owned and planned rental units, will be located directly by local transit systems in the core of Vancouver, allowing students to travel with ease for both school and recreation.

The information and recommendations made available here by The Virtus Advisory Group Inc. (“Virtus Advisory”) and/or all affiliates is for information purposes only. The opinions expressed in this article are based upon our analysis and interpretation of widely available market and company information, and not to be used or construed as an offer to sell or solicitation of an offer to buy any services or securities. Virtus Advisory and its principals, officers, directors, representatives and associates will not be liable for the accuracy of the information included in this article nor shall be liable for any losses or liabilities that may be occasioned as a result of the information or commentary provided in this article.

Virtus Advisory may act as capital markets advisor for certain or all of the companies mentioned in this article and may receive remuneration for its services. Virtus Advisory and/or its principals, officers, directors, representatives and associates may have a position in the securities mentioned in this article and may make purchases and/or sales of these securities from time to time in the open market or otherwise.

Do not consider buying or selling any stock without conducting your own due diligence. Prior to making any investment decision, it is recommended that you seek outside advice from a qualified or registered investment advisor.

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