Rental development proposals continue to surge
The number of condo apartments leased through the MLS system during 2016 in the Greater Toronto Area declined by 2% to 26,602 units, the first annual decline recorded by Urbanation since tracking began in 2011. Rental activity slowed last year on account of occupancy delays for condos under construction, less rental turnover of the existing stock, and an increase in resale activity. Meanwhile, applications for new purpose-built rental development reached 27,812 units, an increase of 7,586 units in the past three months.
Despite a 34% year-over-year surge in final closings for newly completed condos in Q4-2016, total rental listings fell by 8%, pulling down lease volumes by 4% annually during the quarter. With resale prices for condos up 15% over the same period, more owners have become enticed to sell their units as opposed to holding onto them as rentals. At the same time, existing tenants have become less willing to move due to the high cost of renting in the open market. The share of the total inventory of condos that was leased last year declined to 8.5% from 9.3% in 2015, while the share of total units resold jumped from 7.1% to 8.1%.
Average condo apartment rents shot up by 11.7% year-over-year in the fourth quarter, the highest level of growth ever recorded by Urbanation and a dramatic acceleration from the 4.2% rate recorded one year ago. Part of the increased rate of growth was caused by a shift in lease activity to the former City of Toronto and relatively high rents achieved within newly completed buildings. Nonetheless, same sample rents grew by a significant rate of 7.3%, as the average days on market dropped to 13 — down a full week from Q4-15.
“The undersupply of rentals in the GTA continued to worsen throughout the year, causing rents to surge alongside home prices and further deteriorating housing affordability across the region” said Shaun Hildebrand, Urbanation’s Senior Vice President. “While less pressure on rent growth may arrive in 2017 due to a temporary rise in new apartment completions, it’s become clear that more attention needs to be paid to building rentals over the longer-term” added Hildebrand.
Condo Rental Market
Average rents reached a record $2.77 psf in Q4-2016 based on an average unit size leased of 719 sf, equaling an average monthly cost of $1,990. Former City of Toronto rents averaged $2,134 ($3.13 psf), while the Toronto suburbs of Etobicoke, North York and Scarborough averaged $1,857 ($2.47 psf) and the 905 region averaged $1,739 ($2.22 psf). Rents were up the most in the former City of Toronto at 12%, compared to 7% in the Toronto suburbs and 6% in the 905 region.
Purpose-built Rental Survey
Urbanation’s survey of purpose-built rental apartment projects completed across the GTA since 2005 (49 buildings totaling 8,484 units) reported a vacancy rate of 0.6%, down from 1.0% last year. The availability rate (units that are vacant plus those where the tenant has given notice) was 1.6%, the lowest level surveyed by Urbanation over the past two years. Rents across the sample averaged $2.49 psf, up 5% annually. The inventory of purpose-built projects under construction totaled 22 buildings and 5,133 units in Q4-2016, down by 183 units from the previous quarter and down 1,037 units from a year ago. The total inventory of proposed purpose-built rentals increased to 27,812 units, nearly three times the number tallied a year ago (10,513).