THE RISE OF RENTALS
‘DEMAND FOR RENTALS IS GROWING FASTER THAN DEMAND FOR HOMEOWNERSHIP FOR THE FIRST TIME IN MORE THAN 25 YEARS’
Anita MacCallum calls it “a fresh start.”
It was a major life change that had the freelance bookkeeper looking for a place to live with two teenage daughters and a dog. She’d just gone through a marriage separation and wanted to downsize in the same neighbourhood as the century- old home she’d left, while hoping to avoid the maintenance requirements.
One caveat: MacCallum wasn’t looking for a commitment. Which is why she wanted to rent instead of buy.
“It was a good time to sell but not such a good time to buy,” she explains. “Whether I stay longer or shorter, it’s not going to depend on how the market is doing.”
MacCallum ultimately settled on a three- bedroom townhouse at The Ossington, Dunpar Homes’ new- build rental project at Dupont and Ossington, moving into the 54- unit site on Easter weekend. While the rents were slightly higher than the older homes available in the area, she liked that the project was maintenance- free and pet- friendly, and that her unit has a large rooftop terrace, which she’s looking forward to enjoying come summertime.
“I’ve been living in drafty houses for a long time, so it’s nice to be in something new,” she adds. “And as opposed to buying a condo, I don’t have to worry about condo fees.”
The decision to rent instead of buy isn’t one that’s unique to MacCallum, either. The Toronto rental market is on the rise, and developers throughout the city have been quick to respond, building new purpose- built rental stock in numbers beyond what the city’s seen in 25 years. A subset of those developers is even branching out from Toronto’s still-strong homeownership market to make their mark in a new field.
“Developers have recognized how remarkably strong the market for new rentals has become,” says Shaun Hildebrand, senior vice-president of Toronto real- estate market research firm Urbanation. “There’s a whole new market opportunity that has been largely absent in Toronto for decades — brandnew, high- quality, professionally managed rentals.”
An April report by Urbanation showed 7,937 purpose-built rental units under construction within the GTA in the first quarter of 2018, up from 7,422 in the fourth quarter of 2017. Prior to 2017, the last time there were more than 6,000 rental units under construction in a quarter was at the end of 1992, according to data from the Canada Mortgage and Housing Corp.
“Demand for rentals is growing faster than demand for homeownership for the first time in more than 25 years,” says Hildebrand. Homeowner - ship rates have fallen, vacancy rates have declined to one per cent, and rents have appreciated by 25 per cent over the past three years.”
That doesn’t mean developers are giving up on the homeownership market. In fact, Camrost Felcorp, a developer with more than 40 years experience building projects in Toronto, has two condo buildings underway at its St. Clair Avenue project, Imperial Plaza — even as a third building at the site, 101 St. Clair Ave. W., was always planned as purpose- built rental.
For Camrost, 101 St. Clair represents an opportunity to stretch their muscles by concentrating on l arger units that don’t sell as quickly in Toronto’s current condo market. The site, which started leasing in January and is now more than 40-per-cent occupied, has a large selection of two- and three-bedroom units.
“There are fewer one- bedrooms than there are any other type of units, which is very much not typical,” adds Joseph Feldman, Camrost’s director of development.
While most renters in the city are still under 40, Hildebrand adds — and most heavily concentrated between 25 and 34 — niche markets are emerging that developers like Camrost have picked up on. Those include buyers who have delayed ownership and downsizers cashing out on low- rise homes.
“A lot of those individuals have never lived in condos, so for 101 St. Clair to be an interim stop to experience the high-end condo lifestyle prior to purchasing, that’s a demographic we’ve seen in the building,” Feldman says.
“Or individuals that are selling their multimillion- dollar homes and cashing out on their real-estate investment, and just enjoying life.”
But rental comes with its own risks for developers used to the Toronto condo market, where a bulk percentage of units are generally sold preconstruction.
In contrast, deveolpers must build a rental project out before leasing begins, with no guarantee of the site’s success until after the investment has been made.
“With rental, you’ve got to give people a fixed date,” says Jack Winberg, CEO of Rockport Group. The developer — which has worked on a mixed portfolio of residential projects in the past — hasn’t yet reached that “fixed date” point on its 27- storey Yonge and Eglinton rental building, The Montgomery, which is tent atively expected to start leasing this fall. The site will feature 233 units, with amenities that include a gym, meeting rooms and an outdoor pool. Another Rockport rental site, Weston Common, in the west end of the city around Weston Rd. and Lawrence Ave. W., is also under construction.
Although Rockport has developed rental projects in the past, these are the first such sites theyve’ worked on since 2005. While the numbers lined up for Winberg, though, changes to the Residential Tenancies Act last year — which expanded rent control to newer buildings — made it a less-alluring option for others, with some projects cancelled or converted to condo after the announcement.
But like Rockport, many developers still see plenty of potential value in the rental market. With a recent Urbanation report listing average monthly rents in Toronto at $ 2,206 for a 740- square- foot unit, they’re seeing high enough rent potentials to make their projects work — providing they get those numbers right from the onset.
“A great thing for the tenants that move in, but for people like us it’s going to challenge the initial lease-up,” Winberg admits. “We’re going to have to do our initial lease-up at rents that we think are justifiable, but are going to stand the test of time.”
By offering high- quality finishes and amenities worth the higher rents — as well as the security of a stable rental environment — Winberg is confident they’ll get a quality return on their investment, all while building a project that stands out.
Michael DiPasquale, chief operating officer at Dunpar Homes, agrees. The developer has been building and selling residential new- build projects in Toronto’s homeownership markets-since the mid-198o. The Ossington — Anita MacCallum’s new home — represents their first foray into purposebuilt rental, but not their last. It’s a market that DiPasquale still sees as underserviced.
“We think there’s going to be a huge potential,” he says. “There’s going to be a change in attitudes and mindsets in Ontario and the GTA, on how people perceive rentals.”