The Loss-to-Lease Is Shrinking
Market rents went flat while in-place rents kept rising. Most pro formas haven’t caught up.
The mark-to-market upside in walk-up offering memos is getting smaller every year, and most pro formas haven’t caught up.
The story in a BC walk-up package is almost always the same. Tenants are paying well below market, suites turn over, rents reset, and the income grows. That gap (loss-to-lease) is the main value-add lever in older rental stock.
The gap is closing from both ends. In-place rents keep rising every year at the provincial cap, 2.3% for 2026. Market rents in Metro Vancouver have gone roughly flat. Rent growth slowed in 2025 (CMHC), and purpose-built vacancy rose to 3.7%, up from 1.6% in 2024.
A simple example. Two years ago a suite rents at $1,500 a month against a $2,000 market. That’s a $500 gap. The tenant takes two capped increases and now pays ~$1,580. Market rent just hasn’t moved. The gap is now ~$420, about 16% smaller, and nothing about the building changed.
Across 25 suites, the upside drops from ~$150k a year to ~$125k. At a 5% cap rate, that’s ~$500k of value the pro forma is still carrying.
Figures are illustrative and rounded. Every building is different.
The gap closes without the building changing. Monthly rent on one illustrative suite, 2024–2026: market rent flat at $2,000; in-place rent rises on capped increases from $1,500 to $1,550 to $1,580, so the gap falls from $500 to $450 to $420.
Illustrative; rounded. In-place path follows the BC Residential Tenancy Branch caps (3.0% for 2025, 2.3% for 2026).
Walk-up packages tend to market the gap as it stood at the last peak in asking rents. The question worth asking is whether that gap still exists on today’s leases.
There is a second effect that matters more. I only model upside from natural turnover, never buyouts. If ~10% of suites turn over in a year, capturing most of the gap takes about a decade. If market rents stay flat over that period, the gap keeps shrinking while you wait. Pricing the whole gap on day one pays the seller for rent you may never collect.
What I’d do with a package like this:
- re-price the gap against achieved rents on recent lease-ups
- assume flat market rent for the first two to three years
- haircut the gap for the time it takes to capture through turnover
If the deal still pencils on that basis, future rent growth is a bonus. If it only works on the marketed gap, it’s priced for a market from two years ago.
So on any package, the first question is simple: what have comparable suites actually leased for in the last six months?