Kingsclub condominium complex, a 639-suite development on King St. West in Toronto, was a busy construction zone until mid-January when all activity quietly ceased. The developer, Urbancorp, was soon to reveal to unit owners that the project, originally slated for May 2015 occupancy, had been abandoned. New plans are now underway to convert the three towers into luxury rental apartments.
This is the second downtown condo project in a matter of weeks to make the switch from condo to rental. The first was a development called the Selby, a 49-storey, 441-unit downtown condo and townhouse complex. In the Selby’s case, no sales had been finalized, while Urbancorp had already secured deposits from 181 purchasers some three years earlier.
The Toronto Star speculates that these two back-to-back conversions may be a sign that condo interest is waning in Toronto. Given some similar conversions elsewhere in Canada in recent months, could this be the sign of a rental resurgence? Is condo development on the decline while rental demand is on the rise?
“Not exactly,” says Peter Cook, assistant vice president commercial lending at First National Financial. “The condo market is still very strong and will likely remain robust for years to come. Financing isn’t typically an issue for properties in quality locations and for qualified developers. It’s hard to speculate what caused this change of heart; perhaps a better opportunity presented itself. But there is definitely money available for development in the GTA in the case of both condo construction and new purpose-built rental.”
The high-end appeal
Nevertheless, interest in purpose-built apartments seems to be flourishing. “There has been a lot of interest in purpose-built apartments lately. Not just in Toronto, but in mid-sized centres as well,” Cook observes. “Burlington, London, and Kitchener Waterloo are all hot spots for new construction of multi-family apartments. People want brand new, high-end accommodations without the hassle of ownership. Luxury rental is definitely in.”
A perfect example of just such a property is ‘Watercrest’ in Barrie, Ontario—a 167-suite waterfront development overlooking Kempenfelt Bay. Completed in 2014, the building features brand new “condo-quality” rental apartments, impeccable amenities, including a state-of-the-art fitness centre and an outdoor pool, and a convenient downtown location.
“Millenials today are a big component of why this surge is happening,” explains Cook. “They want something nice. They don’t want to live in old 1950s apartments. They want new, modern appliances and fixtures. They want a higher quality building in a great location and they are prepared to pay extra for it.”
Empty nesters are another major factor in that demand. “Once the kids move out, people are selling their homes and moving into smaller accommodations. Renting provides flexibility while owning a condominium doesn’t,” Cook says. “New, high-end properties in central locations are sought after by this demographic who wants a property manager to look after their needs, and high-end condo-quality services. They don’t want the responsibility of ownership, rather the convenience of renting. This is the future of the rental industry in Canada.”
Renting vs. owning
The contentious topic of renting versus owning has been an ongoing debate for decades, but some argue the two aren’t in direct competition. In fact, Greg Romundt, CEO of Centurion REIT believes it’s not the tenants the sectors are competing for, but the sites to build the properties.
“Purpose-built rental has an extremely difficult time competing on the basis of price to buy up desirable sites, because the highest yield in construction is going to condo,” he says. “So the competition isn’t about rental vs. ownership. It’s about buying sites to build buildings. We are just not able to compete against the condo guys.”