Despite falling rents, Morguard's Keith Reading explains why the long-term fundamentals for apartments remain intact
While real estate investors continue to navigate a cautious and fragmented landscape, some sectors are emerging as clear favourites.
For institutional investors like pension funds, the focus has tightened around multi-suite residential rental properties and high-quality industrial assets, according to recent data from real estate firm Morguard. As Keith Reading highlighted, the reasons behind these decisions come down to long-term stability, low risk, and lessons learned from a volatile economic cycle.
Traditionally, pension funds have leaned heavily on office and retail but that appears to be changing. Reading attributed this to the fallout from the underperformance of the office sector as a major catalyst. Multifamily rental units, while not entirely immune to economic shifts, notably offer a fundamental necessity: housing.
“People need a place to live,” said Reading, senior director of research at Morguard. “There aren't enough single-family homes, and incomes really haven't kept up with inflation, so affordability of single-family homes is an issue. The outlook is quite strong, both for multifamily and industrial, because you need a place to live and need to purchase certain items. That's not going to change... We had record demand and record rent growth after Covid but that has leveled out a little bit, partly because of new supply and partly because, statistically, you can't have record rent growth forever. It just doesn't work that way. At some point, families will have difficulty paying that rent,” added Reading, emphasizing that industrial assets have followed a similar arc, slowing but still supported by essential demand drivers.
However, he warned of broader economic headwinds, including erratic US trade policy and tariff uncertainty, which are dampening business expansion and consumer spending. Despite that, he sees conditions improving over time.
Reading explained that pension funds have steadily increased their exposure to multifamily real estate, often through direct ownership, funds, or REITs. That shift is tied to the declining performance of traditional holdings like office and, to a lesser extent, retail.
The appeal of rental apartments comes down to core demand and structural housing challenges. With affordability eroding and supply of single-family homes falling short, rental units have remained in demand even as rent growth begins to cool. That imbalance pushed rents to record highs and vacancies to record lows until about a year ago, when a wave of new supply started easing pressure.
While vacancy rates are creeping up and some rents are being discounted, Reading insists the long-term fundamentals for apartments remain intact, adding that pension funds are sticking with multifamily because it delivers what they need most: low-risk, stable returns over time.
“Pension funds want to be in that market. They want to own multifamily apartments, either directly or indirectly, because pension funds know that's their investment horizon. Long-term apartments generate stable returns. They've gone through some pain with office and so now they’re going for something a little safer. Multi-family apartments are pretty darn safe. We're seeing a bit of price fatigue for renters, but the outlook is still very strong,” noted Reading.
Reading believes economic downturns serve as critical learning periods for pension funds, prompting them to reassess their strategies and refine their approach to real estate investing.
“With each economic cycle, pension funds tend to learn lessons,” he said. Rather than reacting impulsively, he believes they use downturns to analyze performance data and evaluate which asset classes held up and which didn’t.
This reflection isn’t limited to broad market trends. Reading notes that funds are also scrutinizing how their own portfolios behave under pressure. If a particular asset underperforms, it can lead to a strategic shift.
He credits this kind of analysis with driving the current tilt toward industrial and multifamily properties, sectors that have shown resilience in past recessions and continue to offer relatively stable, long-term returns.
One of the key risks for real estate investors, particularly pension funds is being forced to sell in a weak market. Reading emphasized how much timing matters, noting most investors want to sell “in a strong, growing market because you’ll get top dollar for your asset.”
Beyond market timing, Reading emphasizes the importance of understanding sector-specific vulnerabilities, particularly around trade policy. For instance, uncertainty around tariffs, can have a direct impact on how certain business sectors - and the properties tied to them - perform. He argues that investors need to consider what the revenue and business model looks like.
For pension funds, which typically prioritize long-term, low-volatility income, active risk management is fundamental.
“The risks are what happens to that income if you have a downturn and figuring out what your risk appetite is. Consider whether you’re comfortable with very strong growth, but then you might have a significant downturn. Or do you prefer a flatter curve where your returns are much more secure, there's lower risk, which tends to be what pension funds do. They're in it for the long term, good performance, low risk. Anything that increases that risk is probably something you want to stay away from or minimize,” said Reading, adding that the office market currently holds a significant amount of risk.
“We've still got a long way to go in the office market. Companies and government want high quality office space but guess what? We've got a lot of office space that is, shall we say, not high quality.”
