TORONTO – July 19, 2023: Urbanation Inc., the leading source of data and analysis on the GTA condominium and rental apartment markets since 1981, released its Q2-2023 rental market results today.
Double-Digit Rent Growth Continued in Q2
The annual rate of rent growth for units leased in condominium projects during Q2-2023 was 12.6%, pushing rents to a record high average of $2,803 or $4.03 per square foot based on an average 695 sf unit size. While this was a somewhat slower annual pace compared to Q1-2023 (13.6%) and Q4-2022 (16.9%), it represented the seventh straight quarter of double-digit rent inflation. Over the past two years, condo rents in the GTA have risen by a total of 31.7%.
Available units in newer purpose-built rental projects completed since 2005 in the GTA experienced similar annual rent growth of 13.3% in Q2-2023, with average rents rising to $2,944 or $3.91 psf based on an average 752 sf unit size.
Important Note: measured rent growth is only for available units on the market and does not reflect rent increases experienced by occupied, off-market units, which are subject to provincial rent increase guideline amounts (2.5% for 2023) if constructed prior to November 15, 2018.
Investors Continue to Hold Despite Monthly Losses
Of the 17,542 newly completed condominiums that were registered during the 12 months ending June 2023, a record high 36.5% share of units were leased through the real estate board, rising from a 31.4% share for the period ending June 2022. This occurred despite the surge in interest rates causing the majority of investors to fall into a negative cash flow position where rents do not cover monthly ownership costs (as reported in the 2023 Condo Investment Report recently released by Urbanation and CIBC Economics).
Investors have likely been encouraged to hold their units given the strong upward momentum in the rental market and positive market outlook from record high population growth occurring.
Smallest Units See Fastest Rent Growth
As GTA rents continued to escalate to new highs, demand for smaller and less expensive units soared. Condos under 400 square feet experienced the fastest annual rent growth of 15.1% in Q2, with average rents reaching $2,121. The second fastest annual rent increase was for 400-499 square foot units at 14.0%, with rents rising to an average of $2,309. By comparison, the largest units that are 1,000 square feet or bigger saw rents increase 10.2% annually to an average of $3,991.
Rental Construction Remains Minimal as Vacancy Rates Stay Below 2%
The vacancy rate in purpose-built rental buildings completed in the GTA since 2005 was 1.9% in Q2-2023, edging up from 1.5% a year ago in Q2-2022 but remaining below 2% for the sixth consecutive quarter. Meanwhile, only two purpose-built rental projects started construction in Q2 totaling 798 units, down 49% from Q1-2023 (1,555 starts) and falling 32% below the quarterly average since 2018 (1,174 starts). The total number of rental units under construction in the GTA was 19,263 units in Q2, decreasing from the multi-decade high of 19,686 units in Q1.
“The GTA rental market has been on a tear for two years now, with little relief in sight. Starting off as a recovery from the pandemic, rents are now being driven to new highs on interest rates hitting their highest level in 22 years, the population increasing by a record pace, near record-low unemployment, and scarce supply.”
Shaun Hildebrand, President of Urbanation.