Though there was a slight increase in rental supply in the second quarter of 2019, it doesn’t mean rent got more affordable for tenants in the Greater Toronto Area.
Urbanation, a leading source for condo and rental market intelligence in the GTA, released its second quarter findings for the purpose-built rental market. Rental buildings completed since 2005 were surveyed and the average vacancy rate was 1.5%, which is much higher than the record low of 0.3% a year ago. The 1.5% vacancy rate is still low, but it’s the highest recorded since Urbanation started tracking purpose-built rentals in the first quarter of 2015.
“The uptick in vacancy in the first half of 2019 from rock-bottom levels occurred as an increase in new supply created somewhat more choice for renters,” says Shaun Hildebrand, President of Urbanation. “This trend will need to continue in order for there to be meaningful progress towards alleviating the tightness in rental market conditions in the GTA.”
Among the rental buildings completed since 2005, the average rent increased 7.6% year-over-year for available units, hitting a record high of $2,475, based on the average unit size of 794, which is $3.12/square foot.
In the last 12 months, nine purpose-built rental buildings began occupancy, with a total of 3,078 units. This marks a 25-year high for completions. More than half of the units were leased as of the end of the second quarter, with available rents averaging $2,697, based on an average size of 710 square feet, which is $3.80/square foot.
At the end of 2018, the number of purpose-built rental units under construction hit a 30-year high of 12,071. Since then, things have slowed slightly with 11,075 units under construction in the second quarter of 2019. Only 370 units actually started construction in the second quarter, which is the lowest quarterly level since 2016.
While the number of units in the construction phase decreased, there were 2,608 rental units proposed in the second quarter, bringing the total number of units planned to 44,093, which is significantly higher than the 39,444 in the works at the same time a year ago. This sounds like a lot in the works, but only 20% of the units planned have been approved.
Urbanation says the spike in proposed units is because Ontario removed rent control for new buildings, which makes developing a purpose-built rental building potentially more lucrative for developers. In theory, with more supply coming to market, rent growth should ease.