A new report issued by condo research firm Urbanation suggests that Toronto’s booming condo market is more renter friendly due to this year’s influx of completed condos. Although the number of units rented in the GTA grew by 11 per cent (to 4,938 units) in Q1-2015, total listings increased by 21 per cent, with leases-to-listings declining to 64 per cent from 70 per cent a year ago.
“The condo rental market has become more competitive on the supply side in an effort to keep vacancies low,” says Shaun Hildebrand, Urbanation’s senior vice president. “Record levels of rental demand are helping to keep overall rents stable and market conditions balanced, although some moderate downward adjustments to rents have been noted in a few key areas of high supply growth.”
Monthly average rent levels for condo units have also declined, a fact the report attributes to shrinking unit sizes. On average, rent is 1.8 per cent lower than last year, reflecting the diminished square footage. (The size of average rented condos fell 22 square feet to 756 square feet compared to a year ago.)
Other factors influencing slow growth in rents
Though competition from other condominiums is cited in the report as the primary cause for the slow growth in rents, Hildebrand says that population growth among people in their 20s and 30s and the emergence of new purpose-built rental apartments are also key factors.
“The industry is starting to partially recalibrate and pay more attention to purpose-built,” Hildebrand says. “We’re seeing that it makes more sense to build rental as the demand has longevity. With the reported vacancy rates being low and rents still being high compared to a few years ago, builders are confident that their units are going to be absorbed quickly and that demand will remain strong.”
Adding to the need for more rental units is the need for larger apartments. Hildebrand notes that there is currently a lack of two-bedroom offerings, and as such, waiting lists are common for larger abodes.
“Condominiums typically cater to single, young professionals,” he says. “But larger units—suitable for couples, empty-nesters and young families wishing to remain downtown—are what’s really needed.”
In addition, it’s becoming increasingly less affordable to purchase in the city, leading to a whole segment of society that is choosing to rent for longer. “New purpose-built apartment buildings can fill a gap by supplying larger units while achieving a premium for being professionally managed with just one central management system,” he says. “It gives tenants a sense of security knowing that their unit owner isn’t going to go and sell it on them.”
Surveying the purpose-built rental scene
Though typically focused on the condo market, Urbanation saw the need for more data on the purpose-built rental sector and undertook an extensive survey of each rental project completed since 2005. With numbers totaling 34 buildings and 6,723 units, findings included that the average index rent across the market sample was $2.38 per square foot—rent virtually identical to the condo rental market despite the slightly larger unit sizes of 800 square feet.
In terms of new developments, the survey tracked eight buildings totaling 2,458 units—all currently under construction and set for completion by the end of next year. It also looked at 37 buildings with a total of 9,207 units proposed for development. Though not an exhaustive list—other potential high-rise projects may go the rental route—these purpose-built rental developments already represent a growth of 75 per cent compared to the number of purpose-built units constructed in the past 10 years.
With so many new apartments on the horizon, how will it affect the condo market? “Though there is some competition between condo and rental,” Hildebrand notes, “there isn’t a large inventory of new rental stock available yet, as most of these buildings won’t be finished until well after 2016. Given the recent boom in the condo market construction is starting to unwind and condo completions is set to decline after 2017, competition is going to become more limited.”
Erin Ruddy is the editor of Canadian Apartment Magazine