WATERLOO — The oversupply of student housing in this city is far worse than previously thought, says an expert who tracks the investment real estate market.

One of the new student apartment buildings in the university town already is in power of sale proceedings, Karl Innanen, managing director of the Waterloo Region office of Colliers International, said Wednesday.

Currently, there is an oversupply of nearly 1,200 beds, but when new developments that are in the works are included, the surplus increases to 8,321 beds, Innanen said during the commercial real estate firm's presentation of its annual report on market trends.

Innanen said the Colliers analysis does not take into account increases in the student population because the University of Waterloo, Wilfrid Laurier University and Conestoga College are forecasting low single-digit growth in enrolment.

That rate of increase won't be nearly enough to absorb the extra beds, he said.

There are 41,440 university and college students in Waterloo, Colliers said. When you take away students who commute to campuses, that number drops to 31,429.

The Waterloo skyline is dotted with construction cranes for student apartment buildings. When those buildings are completed, the supply of beds will overshoot the market by 20 per cent, said Innanen.

"I think the student market was overbuilt because people got overzealous and there was no discipline," he said in an interview. "Unfortunately, it was a rampant supply of brand new, nice buildings."

Innanen believes newer buildings with modern amenities that are close to the campuses will remain full. That will create problems for student apartment buildings that are not as nice and not as close to the campuses.

At least one recently built student building is now in power of sale proceedings — a forced sale by the financiers to recoup their investment after the owners fell behind in payments.

"That is not a good sign at all, and we expect to see more of that, unfortunately," Innanen said. "There are going to be some real challenges going through that."

Buildings in power of sale proceedings typically sell for lower prices, which creates opportunities for other investors. But the oversupply is a complex problem to unravel, he said.

The buildings "are new, they are nice, they are attractive," he said. "Will they be in places where nonstudents want to live? Will they be in places where young professionals want to live? Possibly. We will have to see how that evolves."

Some of the student apartment buildings contain five-bedroom units. "To convert a five-bedroom unit into a two-bedroom or three-bedroom unit for a family to move into is also difficult," Innanen said.

And mixing students with nonstudents could be problematic. "Will a family want to live in an area that is predominantly a student area?"

But City of Waterloo planners are optimistic the Northdale neighbourhood, where many student apartment buildings are located, will evolve into a mixed use area with a variety of residents.

In recent years, about $600 million was invested in new, multi-unit housing in that area, said Ryan Mounsey, a planner in the city's economic development office. Between 33 and 50 per cent of the residents in the new buildings are nonstudents, he said.

The city spent millions on new streets and parks in Northdale, and changes along nearby streets should also have positive impacts for the student-dominated area, said Mounsey.

The arrival of light rail transit next year and the evolution of the Phillip Street corridor into the Idea Quarter, consisting of a mix of technology companies, retailers and residential developments, will also attract nonstudents to that part of the city, he said.

The market for student apartment buildings was the only dark spot in Collier's report on real estate trends in the region.

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Last year was the second best year on record for real estate investment, with more than $900 million in investment sales. The surge in investment was driven by demand for apartment properties.

"This year there were more than $300 million in sales of apartment buildings," Innanen said. "That's three times a usual year."

As the local investment market has grown the type of investor has changed.

"We have institutional investors here now," Innanen said. "We have REITs (real estate investment trusts), pension funds, groups that buy big properties."

Toronto-based Allied REIT and San Francisco-based Spear Street Capital both moved into the region's real estate market in significant ways in recent years.

"Those big, blockbuster deals have really changed the market and made everybody look at this market," Innanen said. "It is certainly secondary to the prime markets across Canada, but it is not one that anyone overlooks anymore."

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