Has the average rent for a purpose-built unit in the Greater Toronto Area finally hit a ceiling? Recent data from Urbanation suggests it has.
Urbanation’s third quarter purpose-built rental market results include data from rental buildings across the GTA, completed since 2005, which accounts for 68 buildings and 14,832 units.
The average rent in Q3-2019 was $2,515, and this usually doesn’t include other expenses like utilities and parking. This is 6.1% higher than the same period a year ago, but it’s also the slowest rate of growth in the last two years.
While rent growth slowed, the vacancy rate barely budged, moving from 0.6% in Q3-2018 to 0.8% in Q3-2019. So there wasn’t exactly a huge increase in supply, yet rent growth slowed. Urbanation believes that the $2,500 level could mark the beginning of market resistance.
“The latest data suggests affordability constraints are impacting market growth for rentals, with renters seeking to save on costs by forming more multi-tenant households and substituting to smaller units and less expensive areas of the GTA,” says Shaun Hildebrand, President of Urbanation.
That said, there were 3,157 rental units completed this year as of the end of Q3-2019, which is the highest level of new supply to hit the market in 25 years, and this coincided with a spike in condo completions. Urbanation doesn’t include condo rental figures in their quarterly rental report, but they acknowledge that a spike in condo completions means there were likely many condo units being rented out by investors, providing more choice for tenants.
While rental unit completions were high, rental starts were down 47% year-over-year with only 2,540 beginning construction this year so far. It’s clear that something needs to be done to streamline the development process to get more shovels in the ground quicker.
As of the end of Q3-2019, there were 11,413 rental units under construction across the GTA, with more than 80% located in Toronto. There were also 52,838 rental units in the proposal phase, which is much higher than a year ago when there were 42,432.
It will be interesting to see if $2,500 is actually the ceiling for rent in the GTA. If this is true, it’s more important than ever to incentivize purpose-built rental development and make it easier for developers to build and bring these projects to market in order to accommodate population growth.