Rental Apartment Starts Hit Record HIGH
With 1,849 new rental units beginning occupancy since January, GTA rental completions have reached a 25-year high according to a new report from leading real estate consulting firm, Urbanation. Since 2005, just 13,520 purpose-built rental units have been brought to market, underscoring the significance of this growth.
"The latest data shows that market conditions remain tight for rentals in the GTA, with continued upward pressure on rents,” commented Shaun Hildebrand, President of Urbanation. “However, we are starting to see the early signs of some relief emerging as more supply enters the market from both new purpose-built rentals and condo rentals.”
"Since 2005 only 13,520 rental unist have come on stream. "
As the year progresses, Hildebrand predicts that deliveries of both forms of rentals will continue to grow, which should create even more balance in the market and lead to a slower rate of rent increase than we’ve been seeing over the past three years.
“As rents have risen to new highs and population inflows into the GTA have surged, there has been a strong shift in demand to smaller units,” he said. “It’s pretty clear that rentals of all types are needed, but some projects have also experienced really good success with larger units that cater to couples, families and downsizers. Condo rentals tend to be on the smaller side, so this growing market segment represents a solid opportunity for differentiated product in the purpose-built market.”
Rental report highlights
- The demand for newly completed rental buildings was strong in Q1, with several new projects reporting they’d leased close to half of their total units by the end of the first quarter.
- Vacancy rates surveyed within purpose-built projects completed since 2005 remained extremely low at an average of 0.6 per cent.
- Cost of rent only grew by 5 per cent year-over-year on a same-building basis, slowing from a 9 per cent annual pace at the end of last year. As of Q1-2019, purpose-built rents in buildings completed since 2005 averaged $2,398, or $3.25 per square foot based on an average size of 738 square feet.
- Monthly condominium rents grew by 7.7 per cent per square foot on a same-building basis compared to a 9.2 per cent annual increase in Q4-2018. Rents in these properties averaged $2,376 ($3.28 per square foot) across the GTA—which is 7.8 per cent higher than a year ago.
- In the Central Toronto market (excluding North York, Scarborough, and Etobicoke), average condominium rents increased by 4.5 per cent annually to $2,542 ($3.71 per square foot), the slowest rate of rent growth for the central market area in two years.
“Condominium rent growth is heading towards a more moderate pace relative to the past couple of years as rental affordability challenges have become greater and more supply is entering the market from projects finishing construction,” the report stated. “Although the volume of condominiums leased through MLS grew by 13 per cent year-over-year in Q1-2019 to 6,005 units, supply grew faster than demand last quarter, pushing down the ratio of leases-to-listings to 73% — the lowest level in four years.”
As of the end of the quarter, there were 2,059 active condominium rental listings on MLS, representing a 44 per cent increase from a year ago, but still equal to less than one month of supply. Furthermore, the average time on market of 20 days in Q1-2019 was at its highest level in three years, indicating that units are taking a bit longer to rent.
A total of 42,841 purpose-built rental apartments were proposed for development but had not yet started construction as of Q1-2019, which is 20 per cent higher than the total proposed inventory of 35,834 units as of Q1-2018 and nearly 50 per cent higher than the 28,841 units proposed as of the end of Q1-2017.
The rise in completions in the first quarter brought down the number of purpose-built rentals under construction to 10,694 units from its recent high of 11,905 units in Q4-2018, but still remained above the level from a year ago (8,510) and substantially higher than two years ago (5,894).
“The increase in rental completions in early 2019, which is coinciding with more condominium projects finishing construction, has shown that growth in new supply can have a direct impact on the rate of rent growth,” Hildebrand said. “The challenge going forward will be keeping rental construction numbers rising to a level that meets growth in demand.”
CONDO RENTAL TRENDS - GTA
The average condominium apartment for lease on Rentals.ca in Q1-2019 was listed for $3.23 psf, nearly identical to the $3.24 psf from Q4-2019. Asking rents for two and three bedroom units increased by 1.0% quarterly and 2.2% quarterly, respectively, while one bedroom rents per-foot were virtually unchanged. Studio rents per-square-foot of $4.44 units declined by 2% quarterly (from $4.53 psf).
In Toronto, condo rental rates increased from $3.81 psf to $3.82 psf quarter-over-quarter. References to Toronto in this report reflect the former City of Toronto boundaries, pre-amalgamation. In Toronto, studio condos were being listed at $4.54 per-square-foot in the first quarter for 452 square feet on average, a decrease of 1.3% quarterly. Rents per-foot are virtually unchanged for one-bedroom units at about $3.95 per-square-foot, while two-bedroom units rent increased by 1.7% quarterly to $3.51 per-square-foot for 877 square feet on average.
The most active postal code by a significant margin in M5V (the Entertainment District), which actually saw a slight decline in rental rates per-foot from October to March from $4.09 per-square-foot to $4.05 per-square-foot.
The second most active postal code is M5A (the downtown east), which saw rents increase by nearly 6% from October to March to $3.67 per-square-foot. The third most active area is M5J (the south core), where rents increased by just under 1% from October to March, rising from $4.03 per-square-foot to $4.05 per-square-foot.
Four of the most active condo projects on Rentals.ca over the past six months are in postal code M5V, with the top three pictured in the chart below: Bisha Hotel & Residences had units listed at $4.92 per-square-foot on average, Noir (87 Peter) has units listed at $4.71 per-square-foot on average, and Smart House had units listed at $4.57 per-square-foot.
Interest Rates Remain As Is
Bank of Canada
The Bank of Canada maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.
Global economic growth has slowed by more than the Bank forecast in its January Monetary Policy Report (MPR). Ongoing uncertainty related to trade conflicts has undermined business sentiment and activity, contributing to a synchronous slowdown across many countries. In response, many central banks have signalled a slower pace of monetary policy normalization. Financial conditions and market sentiment have improved as a result, pushing up prices for oil and other commodities.
Global economic activity is expected to pick up during 2019 and average 3 ¼ per cent over the projection period, supported by accommodative financial conditions and as a number of temporary factors weighing on growth fade. This is roughly in line with the global economy’s potential and a modest downgrade to the Bank’s January projection.
In Canada, growth during the first half of 2019 is now expected to be slower than was anticipated in January. Last year’s oil price decline and ongoing transportation constraints have curbed investment and exports in the energy sector. Investment and exports outside the energy sector, meanwhile, have been negatively affected by trade policy uncertainty and the global slowdown. Weaker-than-anticipated housing and consumption also contributed to slower growth.
Overall, the Bank projects real GDP growth of 1.2 per cent in 2019 and around 2 per cent in 2020 and 2021. This forecast implies a modest widening of the output gap, which will be absorbed over the projection period.
RECENT APARTMENT SALES
679-693 Cumberland Avenue – Burlington – SOLD $3,100,000 / $387,500 per unit / 4.2% Cap Rate
This property is located in south central Burlington in a strong single family residential location. It is comprised of two lots with 4 rental towns on each lot. Half the units were renovated and getting rents over $2,500/m. Unrenovated rents were 50% below this level. The property was fully exposed and purchased by a private investor.
1491 Wilson Avenue – North York – SOLD $9,250,000 / $225,000 per suite / 3.6% Cap Rate
This is a 1950's walk up rental apartment building on a corner lot with extra land. There are a total of 41 apartment suites mostly one and two bedrooms. Many suites had been renovated and rental upside was around 25%. The building was fully occupied with a hot water gas fired heating system. It was generally in good condition and was fully exposed and purchased by a private investor.
100 Broadway Avenue & 223-225 Redpath Avenue – Toronto – SOLD $39,150,000 / $738,700 per suite
This property was sold by the CFR Apartment Group and comprises a 53 suite mid rise rental apartment building and two homes. The site is a prominent corner and is 0.36 acres in size. The building was purchased by Reserve Properties Ltd. and will be redeveloped into a new condo development in the mid term. The purchaser is active in this location and has other projects in the area.
1539-1647 Williamsport Drive / 3468-3532 Fieldgate Drive – Mississuaga – SOLD $26,750,000 / $338,600 per unit / 3.8% Cap Rate
This project is located in central Mississauga and comprises seven townhouse blocks on over 5 acres of land and a total of 79 units. The units are large and well maintained with lower than market rents. The property was owned by the same owner for decades and was well taken care of. It was generally in good condition and was fully exposed and purchased by Starlight Investments Ltd.
1502 King Street West – Toronto – SOLD $3,037,000 / $202,465 per suite / 3.5% Cap Rate
This is a 1920's walk up rental apartment building located in the heart of Parkdale and it comprises a total of 15 apartment suites. Most suites are below average in size. The building was fully occupied at the time of sale and had rents 35% below market at the time. The building was well maintained with many capital improvements recently completed. It was purchased by a private first time investor and was listed on the MLS.
THE APARTMENT GROUP
Together the team has completed over 1,000 transaction and has sold over $5 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings then your group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner