Research firm Urbanation Inc. says shrinking condominium inventory in the Greater Toronto Area’s high-rise sector, driven partially by landlords selling to would-be homeowners, helped drive the highest annual rental rate the firm has ever seen.
Urbanation, which has been tracking the condo sector since 1981, said Monday in its year-end report that Toronto condo rental rates jumped 11.7 per cent in 2016 with the average rental rent in the fourth quarter reaching $2.77 per square foot per month.
With the average lease size in the GTA 719 square feet, that puts the average monthly rent for condos at $1,990 per unit. In the former city of Toronto, which includes all of the downtown core, the average rent reached $2,134 per month.
“The under-supply 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, senior vice-president with Urbanation. “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.”
The real estate company said the number of condo apartments leased through the multiple listing service system (MLS) in the GTA dropped by two per cent from a year earlier to 26,602 units in 2016 — the first decline since the company started tracking those sales in 2011.
Urbanation chalked up the drop in rental activity to delays in condos under construction being finished and less rental turnover of existing stock, but also an increase in resale activity.
“With resale prices for condos up 15 per cent over the same period, more owners have become enticed to sell their units as opposed to holding onto them as rentals,” the company said in a release. “At the same time, existing tenants have become less willing to move due to the high cost of renting in the open market.”
The surge in demand for rental units comes amid an acceleration in housing prices. The Toronto Real Estate Board said this month that existing home prices across all housing stock rose 17.3 per cent in 2016 from 2015 with December prices up 21 per cent from a year earlier.
The Building Industry and Land Development Association says supply continues to dry up in the region which drove the average new detached home to $1,230,961 in November, a 27 per cent increase from a year earlier. But the new condo sector has seen a drop in supply too, leading to 10 per cent increase in prices from a year earlier to an average of $493,137 in November, the group said.
Urbanation noted a shift in the landscape that saw the share of the total inventory of condos that was leased last year drop to 8.5 per cent from 9.3 per cent a year earlier, while the share of total units resold jumped from 7.1 per cent to 8.1 per cent during the same period.
There is a bump in purpose-built rental coming with applications for new units reaching 27,812 units in 2016, increasing by 7,586 units in the past three months. Vacancy rates in the purpose-built segment of the market dropped to 0.6 per cent in 2016 from one per cent a year earlier.
The availability rate — units that are vacant plus those where the tenant has given notice — was 1.6 per cent, the lowest level over the past two years. The company says rates continue to climb in that segment of the market too, reaching $2.49 per square foot per month in 2016 for a five per cent annual increase.