A new report from Urbanation indicates the GTA rental market is in healthy shape, with tightened conditions due to fewer completions and less turnover.
A notable surge in demand for rental was also cited in the report, attributable to several factors, including: the high cost of home ownership; the in-flux of millennials seeking independence from their parents; international immigration; and Canadians from other parts of the country moving to Toronto for work.
“Rental supply in the GTA has tightened due to fewer completions and less turnover, which is creating conditions for stronger rent growth,” said Shaun Hildebrand, Urbanation’s Senior Vice President. “With not as many would-be buyers vacating their units for the ownership market, competition among renters has increased over the past year.”
GTA rental market highlights
According to the report, applications for new rental developments continue to soar, with an additional 5,603 units proposed during Q2, bringing the total inventory in the current pipeline to 19,230 rental units.
Construction activity remained steady from the previous quarter at 6,354 units—up from 3,939 units a year ago. Vacancy rates and rents within the 7,309 purpose-built units completed since 2005 averaged 0.4 per cent and $2.41 per square foot, respectively.
Three new purpose-built rental apartment buildings, totaling 298 units, began occupying during the second quarter, with 66 per cent of units absorbed during the period. An additional 1,750 purpose-built units are scheduled for occupancy during the second half of the year and 2,486 units in 2017.
Rents and vacancy rates
Across the 5,158 purpose-built rental units completed in the City of Toronto since 2005, surveyed rents averaged $2.76 per square foot, slightly higher than the average for condo apartments in the 416 Region at $2.74 per square foot and substantially higher than purpose-built units in the 905 Region ($1.67 psf). Second quarter purpose-built vacancy rates were only 0.1 per cent in the 905 and 0.7 per cent in the City of Toronto.
Apartment site acquisitions
In a sign that more supply is heading into the GTA rental market in the future, Urbanation’s tracking of commercial property transactions revealed that apartment development site sales reached 73 transactions during the first half of 2016, up from 47 acquisitions during the first half of 2015.
The total value of apartment site sales increased by 13 per cent annually in the first half to $971 million. More than 90 per cent of the total value of sales was located in the City of Toronto ($904 million) and three quarters in the former City of Toronto ($730 million).
Condo rental activity
The number of condo apartments rented through the MLS system during Q2-2016 in the GTA declined by 10 per cent year-over-year to 7,397 units. Activity moderated from record levels, following a 25 per cent rise in the first quarter and coming alongside a 39 per cent drop in new unit registrations compared to a year ago. Total listings declined 15 per cent year-over-year in Q2, leading to tighter GTA rental market conditions and annual condo rent growth of 5.2 per cent, with rents averaging a record $2.61 per square foot, or $1,934 monthly for the average 741 square foot unit rented.
Within buildings existing a year ago, leases grew by six per cent annually in the second quarter—a deceleration from same building growth of 10 per cent last year and 23 per cent recorded in 2014. Quarterly turnover (measured by leases as a percentage of the condo rental stock) declined to an estimated 5.5 per cent in Q2-2016 (21 per cent over the past year), down from 5.9 per cent in Q2-2015 and a recent high of 10.6 per cent in Q2-2012. Same sample rent growth edged up to 3.6 per cent from the 3.0 per cent annual pace in the first quarter.
The decline in the available supply contributed to a record high ratio of leases-to-listings at 84 per cent (up from 79 per cent last year), with the average time on market dropping by a full week from 24 to 17 days. Of the 3,992 new condo apartments registered during the second quarter, 26 per cent were rented through the MLS, with a leases to-listings ratio of 94 per cent and an average rent of $2.80 per square foot.
Urbanation provides leading analysis and information on the Toronto condominium and rental markets.