Landlords regain the upper hand
Pandemic reprieve for tenants appears to be at an end as Toronto-area vacancy rates tighten
In what is being called a “remarkable” turnaround in the rental sector, the pandemic reprieve for Toronto region tenants appears to be at an end as vacancies fell and rental incentives declined in the final quarter of 2021.
Vacancies in purpose-built rentals completed since 2005 hit 2.4 per cent in the fourth quarter, down from 6.4 per cent at the start of 2021 and down from the 5.7 per cent vacancy rate of the fourth quarter of 2020, according to a Wednesday report from development-tracking market research firm Urbanation.
Before the pandemic in the final quarter of 2019, the region’s vacancy rate had fallen below one per cent.
In last year’s final quarter, the downtown rental sector remained in balanced territory at 3.1 per cent, less than half of the 7.4 per cent of a year earlier and the 9 per cent peak vacancy rate of the first quarter of 2021.
Vacancies were lower at 2.3 per cent in Scarborough, Etobicoke and North York, and lower still in the 905 areas where they hit 1.1 per cent in the last quarter.
Even at the peak of the pandemic, vacancy rates never exceeded two per cent in the 905 areas, said Urbanation president Shaun Hildebrand.
“This really illustrates the lack of rental supply in the 905 markets,” he said. “By far the bulk of supply that’s been delivered has been located in the city of Toronto. However, we’re starting to see demand for rentals spread throughout the region.”
That is partly because of the growth of work from home and hybrid work arrangements and, traditionally, units in the 905 tended to be a little larger, said Hildebrand. But the growing expense of homeownership is also likely a factor.
“Homeownership has got more expensive everywhere but particularly so in the 905 region. That’s where we’ve seen the strongest rates of price growth. So it’s been pricing out a lot of people who live in these markets and it has led to a lot of growth in the demand for rentals,” he said.
Hildebrand said the turnaround in the rental sector has been remarkable. A year ago, rents were down 15 per cent and vacancy rates were hitting new highs with 905 rentals starting to outprice city apartments. Where 70 per cent of purpose-built rental buildings were offering enticements to tenants a year ago, only 47 per cent were offering those incentives in the last quarter.
He called 2021 “a breakout year for (rental) construction starts with 6,720 units underway, up from the average of 3,379 that the region saw between 2016 and 2020. At the end of last year there were 17,912 rental units being built and another 93,321 in the proposal stage.
“We don’t think that it’s enough to satisfy demand, but it speaks to the confidence in long-term vision developers have for the rental market,” said Hildebrand.
The average condo rent in the fourth quarter of last year was $2,361 dollars a month — $300 per month less than the cost of owning an apartment of the same size. The 10.9 per cent annual increase in regional rents in the fourth quarter was led by a 15.9 per cent climb in the city, said Urbanation.