Q2-2023 rental market data, released July 19th from Urbanation, reveals that the annual rate of rent growth for vacant GTA condos was 12.6 per cent, pushing rents to a record high average of $2,803. While this was somewhat slower than annual growth rates registered in Q1-2023 (13.6%) and Q4-2022 (16.9%), it represented the seventh straight quarter of double-digit rent inflation. Over the past two years, rents for vacant GTA condos have risen by a total of 31.7 per cent.
Meanwhile, available units in newer purpose-built rental projects completed since 2005 experienced a similar annual rent growth of 13.3 per cent, with average rents rising to $2,944.
“The GTA rental market has been on a tear for two years now, with little relief in sight,” said Shaun Hildebrand, President of Urbanation. “Starting off as a recovery from the pandemic, rents are now being driven to new highs on interest rates hitting their highest level in 22 years, the population increasing by a record pace, near record-low unemployment, and scarce supply.”
Of the 17,542 newly completed condominiums that were registered during the 12 months ending June 2023, a record-high 36.5 per cent share of units were leased through the real estate board, rising from a 31.4 per cent share for the period ending June 2022. This occurred despite the surge in interest rates causing the majority of investors to fall into a negative cash flow position where rents do not cover monthly ownership costs (as reported in the 2023 Condo Investment Report recently released by Urbanation and CIBC Economics).
According to Hildebrand, investors have likely been encouraged to hold their units given the strong upward momentum in the rental market and positive market outlook from record-high population growth occurring.
Smallest units see fastest rent growth
As GTA rents continued to escalate to new highs, demand for smaller and less expensive units soared. Condos under 400 square feet experienced the fastest annual rent growth of 15.1 per cent in Q2, with average rents reaching $2,121. The second fastest annual rent increase was for 400-499 square-foot units at 14.0 per cent, with rents rising to an average of $2,309. By comparison, the largest units over 1,000 square saw rents increase 10.2 per cent annually to an average of $3,991.
Rental construction remains minimal
The vacancy rate in purpose-built rental buildings completed in the GTA since 2005 was 1.9 per cent in Q2-2023, edging up from 1.5 per cent a year ago, but remaining below 2 per cent for the sixth consecutive quarter. Meanwhile, only two purpose-built rental projects started construction in Q2 totaling 798 units, down 49 per cent from Q1 (1,555 starts) and falling 32 per cent below the quarterly average since 2018 (1,174 starts). The total number of rental units under construction in the GTA was 19,263 units in Q2, decreasing from the multi-decade high of 19,686 units in Q1.
