Cap Rate Sensitivities
and Density
In addition to the rental pro forma analyses, a Cap
rate sensitivity analysis has been conducted for all
three scenarios. A Cap rate, or capitalization rate,
is the rate of return that is expected to be generated
on a real estate investment property. It is a measure
of how long it will take a rental provider to recover
the up-front investment in a new property, and is
also used to estimate risk. This is determined by
dividing a property’s net operating income (NOI)
by the market value. The Cap rate analysis outlines
the project’s sensitivity to changes in the market –
both in value and operating costs. Cap rates move
in the same direction as interest rates, and with the
expected increases to interest rates in 2022, there
is more relative risk for rental developments. Rents
are also affected by interest and Cap rate changes;
however they are also heavily impacted by other factors
like supply and demand. The chronic lack of new
rental supply and persistent demand in Vancouver are
contributing factors to the rising rents shown below.
Interest Rate: Bank of Canada Overnight Rate, Bank of Canada
Cap Rate: Multi-Family Residential Cap Rate (High Rise Class A, CBRE Cap Rate & Investment Insights Reports
CMHC Average Rent: City of Vancouver City-Wide Average Rent (all unit types and year built, CMHC Rental Market Reports
2021
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
PERCENTAGE %
MONTHLY RENT
INTEREST RATE CAP RATE CMHC AVERAGE RENT
Interest, Cap & Rent (2005-2021)