The latest market report from Marcus & Millichap reveals the GTA apartment sector is experiencing another strong year, with continued growth projected.
One of the key factors influencing this outcome has been the rise in household formation, aided by the flourishing tech sector. According to the report, Toronto has registered exceptional job growth in tech-related positions, adding more employers in this sector than many other major metros in the U.S.
Over the past year ending in June, 73,100 jobs were created across the GTA, marking a 2.2 per cent expansion to the workforce from a year earlier. The unemployment rate rested at 6.3 per cent in June, recording a 50-basis-point year-over-year decline, creating challenges for employers amid tightness in the labour market.
Household growth remains strong with an estimated 29,000 households projected to form in 2018, bolstering demand for apartments across Toronto to keep vacancy low and support rent growth.
Large down-payments make purchasing a home prohibitive
The single-family benchmark home price fell 8.8 per cent in June from one year earlier to $878,000 as mortgage regulations put in place last year continue to take effect. Even though home values have fallen, entry-level homebuyers are still finding the housing market to be challenging due to the large amount needed for a down-payment.
With a limited number of starter homes on the market, apartment demand has held exceptionally strong, lifting rents more than 5 per cent last year while keeping the vacancy rate near 1 per cent, motivating developers to increase activity. More than 7,000 apartments were underway at mid-year, the highest level in more than 20 years.
Robust supply growth remains overshadowed by substantive rental demand. Roughly 3,000 apartments are forecast for completion in 2018, most concentrated in downtown Toronto and the eastern suburbs.
One of the largest projects set for delivery this year is Casa, a 1,471-door mid-rise in the Emery neighbourhood. Most projects incorporate a mixed-use component, filling demand from young professionals who desire an urban and active lifestyle.
The GTA vacancy rate will remain on a downward trajectory even with completions set to double last year’s total, contributing to a 5 per cent increase to the average rent to $1,365 per month in 2018.
Robust investor demand lifted deal flow 14 per cent over the year ended in June compared with the prior year-long stretch. Sales activity was highest in the city of Toronto, North York and Oshawa.
Additional GTA apartment sector investment highlights:
- The average cap rate compressed 40 basis points over the past year to the mid-3 per cent to low-4 per cent area. First-year yields surrounding Oshawa neared 5 per cent, fueling activity among yield-driven investors.
- Prices climbed 17 per cent on strong buyer demand to an average of $256,800 per unit for properties traded over the past year. Assets in the city of Toronto changed hands at $318,300 per unit. In Oshawa an average price of $135,600 per unit was posted.
- Rent controls put in place recently have yet to slow investor demand or rent growth as was previously feared. Strong rental demand and improving property performance will keep sales activity elevated this year, particularly in areas near employment hubs with transit connectivity.