Site Selection Criteria: Some General Ideas

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Finding sites suitable for new rentals can be a challenge. Land is getting in short supply everywhere, and where it isn’t, prices are high, often too high to justify developing rental housing; it’s always about the money. But that shouldn’t stop us from thinking about site selection criteria to help developers identify locations suitable for new rentals, which can be a useful exercise.

Here are my basic suggested site selection criteria:

  • Grocery store within 5 minute drive or 10-15 minute walk.
  • Pharmacy/drug store within 5 minute drive or 10-15 minute walk.
  • Mass transit stop within walking distance.
  • On or adjacent to at least one major arterial road.
  • Divided highway access within 10 minute drive.
  • In a gentrifying area or area ripe for near-future gentrification.

Some of the items in the list above require no discussion. Having a grocery store and pharmacy within walkable distances are pretty obviously good things. So too is having a mass transit stop nearby, although this only applies to larger cities with extensive public transit networks; ready access to major arterial roads and highways takes on greater importance in smaller towns without transit networks. Gentrification is hard to define and it might not even be the right word, but what I mean are neighbourhoods which are improving, not declining, or which have the near-term potential to improve.

One thing I didn’t put in my list is competition. Should developers look for sites away from existing rental buildings? I think it’s best for a new rental building to be away from other new rental buildings, to reduce direct competition, but being near a few older rental buildings might be a good thing. Why? As long as those older buildings are good quality, they will help sell your new building by making the advantages of living in your new building obvious to prospective renters and making it easier for you to justify your high rents. Plus, older buildings also provide a pool or prospective renters looking to upgrade. Having said that, being near other new rental buildings isn’t necessarily a negative if the location is desirable and your new building offers better quality than the competition, or at least a better value proposition to renters.

Ticking off all of my criteria would obviously be a challenge, and it’s probably only possible for sites in Ontario’s larger cities. Fortunately, demand for rental housing is so high and supply so slow in most cities in southern Ontario that even new buildings constructed on less desirable sites would probably have no difficulty being absorbed into the rental housing pool. So does location really matter with new rentals? You can look at it from both sides. On one hand, location always matters with real estate, and when you have to “sell” or re-lease the same real estate over and over again, as with rentals, a good location is always going to be better than a bad location. On the other hand, location might not matter much since the shortfall between supply and demand is so high in most cities in southern Ontario that renters will rent almost anywhere. Ultimately, I think location matters very much for rentals, for two reasons. First, rental units need to be ‘sold’ over and over again as they turn over, so a desirable location will help make that sales process easier (condominiums, by contrast, need to be sold only once). Second, renters are often renting by choice, not necessity—at least among upscale renters—so a desirable location will be a major factor in their decision making.