The GTA vacancy rate reached an all-time high in Q1-2021 according to a new survey by Urbanation looking specifically at purpose-built rental apartment projects completed since 2005.
Rising to 6.6 per cent by the end of Q1-2021, the GTA vacancy rate has climbed from 5.7 per cent in Q4-2020 and 1.1 per cent in Q1-2020. In the City of Toronto, vacancy rates increased to 8.8 per cent in Q1-2021 from 7.3 per cent in Q4-2020 and 1.1 per cent in Q1-2020. Meanwhile in the 905-region, vacancy rates remained low at 1.5 per cent.
“The rental market will continue to contend with COVID-19 as the third wave keeps the GTA in a lockdown during the second quarter,” said Shaun Hildebrand, President of Urbanation. “However, market dynamics were set in motion in the first quarter to generate strengthening rental conditions as the year progresses—particularly later in the second half as the population becomes vaccinated, offices start to reopen, immigration rises, and post-secondary students potentially return to in-class learning. These variables are obviously subject to change and dependent upon exogeneous factors, but as each day passes and housing prices get more expensive, the upside for the rental market rises.”
Urbanation’s vacancy calculations exclude buildings still in their initial lease-up period, regardless of how long they have been on the market. This differs from the methodology used by CMHC when calculating vacancy rates, which includes all buildings that have been on the market for at least three months. When applying the CMHC methodology, Urbanation’s survey reveals a vacancy rate of 13.0 per cent at the end of Q1-2021 in the GTA (16.5 per cent in the City of Toronto) for buildings completed since 2005, which compares to a vacancy rate of 8.3 per cent in the GTA (9.5 per cent in the City of Toronto) published by CMHC in their October 2020 survey for the same set of buildings. When examining historical CMHC data back to 1990 for newer buildings, the latest rates of vacancy surveyed by Urbanation represent a record high for the GTA.
Average rents for available units within buildings completed since 2005 in the GTA were $2,278 ($3.14 per square foot) during Q1-2021, declining 8.2 per cent (-5.3 per cent per sf) year-over-year. In the City of Toronto, rents were down 10.1 per cent from a year ago to $2,331 (down 7.7 per cent on a per sf basis to $3.41). The decline in rents was additional to widespread incentives being offered in the market. About two-thirds of buildings were offering free rent periods of one to three months to attract new tenants. Urbanation calculated that these free rent periods were equal to a rent reduction of approximately $255 per month when averaged over the course of the initial lease term.
Condominium lease transaction activity reached a Q1 high of 11,928 units, up 70 per cent from a year ago. Importantly, Urbanation points out that total condo rental listings fell 12 per cent, quarter-over-quarter, which helped the ratio of quarterly condo leases-to-listings improve to a pandemic high of 61 per cent—still 10 percentage points below the 10-year average but reaching the lower boundary of a balanced market.
In a sign that the urban rental market may be starting a comeback, the City of Toronto outperformed the 905 region in terms of annual growth in lease activity in Q1 by a wide margin of 78 per cent versus 46 per cent.
Evidence of a bottoming-out for rents appeared in the first quarter data. On a quarter-over-quarter basis, average per sf rents decreased 1.4 per cent—a significant improvement compared to the 7.5 per cent quarterly drop recorded in Q4-2020. Furthermore, average monthly rents increased month-over-month in both February and March (each by more than 1%), suggesting that the market reached its low in January at about $2,000 and is already on the path to recovery.
At an average of $2,037, condo rents in the GTA were down 14 per cent year-over-year in Q1. In the City of Toronto, average rents declined 16.2 per cent year-over-year to $2,033, falling below the 905 average of $2,053 (down 6.7% year-over-year) for the first time ever. On a per square foot basis, rents remained higher in the City of Toronto than in the 905 at $2.98 versus $2.67.
GTA rental supply pipeline reaches 100,000 units
New rental construction activity slowed over the past year, but long-term planning for purpose-built rental development continued to escalate. A total of 1,009 new rental units started construction in the year ending Q1-2021, down 73 per cent from 3,735 starts in the year ending Q1-2020. The number of purpose-built rentals under construction across the GTA as of the end of Q1-2021 totaled 13,563 units, which was down slightly from a year ago (13,863) but more than twice as high as the level from five years ago in Q1-2016 (5,833 units). The total number of proposed purpose-built rental units that haven’t started construction reached a recent high of 86,683 units—34 per cent higher than a year ago (64,757 units) and bringing the total pipeline of rental units under construction and planned in the GTA to over 100,000 units.
For the complete report, visit: Urbanation |