A year ago, the monthly rent for a typical one-bedroom apartment or condominium in the Toronto real estate market was among of the highest in the world. Supply was limited, vacancy rates were low and demand was strong. What a difference a year makes, showing just how quickly a lucrative market can change almost instantly. For the first time in what seems like forever, renters in North America’s fourth-largest city received a reprieve from rising rents, in what some people are calling a COVID-19 discount.
But while renters finally caught a break in Toronto’s red-hot rental market, mom-and-pop investors have been walloped by the coronavirus pandemic that sent rents plummeting. What seemed like a surefire real estate investment, now weighs on the wallets of condo owners who are looking to rent or sell their units. Many are forced to decide if they can afford to pay more on their mortgage than they collect in rent, or sell the property and endure a loss on their investment.
As condo towers dominate Toronto and Vancouver’s skylines, tens of thousands of these units are sitting vacant during the COVID-19 public health crisis. Indeed, there might be light at the end of the tunnel, but if the economy fails to recover or the pandemic does not diminish by the summer, the vulnerabilities in Toronto real estate could be exposed.
So, how bad is it out there? While there has been some noteworthy data to highlight the fragility of Toronto’s condo market, not all hope is lost!
Rent Discounts in Toronto Real Estate: Another Symptom of 2020?
Condo rents have been on a downward trajectory since the coronavirus pandemic started, and restrictions, lockdowns and immigration controls took hold.
According to its listing service, the Toronto Regional Real Estate Board (TRREB) reported that condo rents declined 17 per cent from a year ago. But this is part of a broader downward trend this year.
In its third-quarter report, TRREB confirmed a 30.2-per-cent increase in the number of condominium apartment rentals on the market. Rent for an average one-bedroom unit tumbled 11.1 per cent to $2,012 during the July-to-September period. Rent for a two-bedroom unit also declined by 9.2 per cent to $2,672 in the third quarter of 2020.
While demand was healthy, the number of units coming to market surged in the third quarter.
“The demand for condo rentals remained very strong in Q3 as the economy experienced a substantial rebound. However, this demand was overshadowed by the very rapid rise in rental listings. Even if rental transactions remain at or near record levels, it will take some time for the added supply to be absorbed. Once we move into the post-COVID period, population growth from immigration and non-permanent residents will bolster rental demand and absorption,” said Jason Mercer, TRREB’s Chief Market Analyst, in a statement.
TRREB’s data was supported by a separate joint report from Rentals.ca and Bullpen Research & Consulting. The “2020 December National Rent Report” highlighted that Toronto rents dropped 20 per cent in November compared to the same time last year.
Overall, tenants could be saving more than $500 per month if they rented a place in Toronto today versus a year ago. At the same time, investors paying the average price of about $600,000 per unit would pay approximately $200 more per month than they received in rent. These are significant numbers that make a vast difference to anyone’s cash flow.
What Happened to the Rental Market?
Indeed, nearly all the blame may be on the coronavirus public health crisis. However, there have been many things that have occurred since the lockdowns were implemented in Ontario.
The biggest development was the crackdown on the short-term rental market. In the era of Airbnb, condo owners profited from this market and used it to their advantage to help pay down their mortgages. After cities clamped down on these types of units, condo owners either turned their suites into long-term rental options or allowed them to lie dormant.
The other factor has been the lack of immigration this year. Due to air travel restrictions and new border policies, fewer people – whether students or professionals – are coming to Canada. This was a critical development because immigrants have been one of the largest factors contributing to Toronto’s strong rental market over the years.
Another notable development in this market is the growing number of people who are trading up from condos. The demand for single-family homes has soared during the pandemic, so there is an issue of dwindling demand for the condo lifestyle.
The New Normal?
So, from East York to North York to Old Toronto, if you are looking for an apartment to rent, now might be an opportune time to begin your search. Landlords are competing for tenants, and some are offering a plethora of added features and ramping up their marketing campaigns. There may be no better time to rent than right now.
But is this a long-term trend? The consensus is that the next six to 12 months will be pivotal, from jurisdictions returning to lockdowns, to the rollout of the coronavirus vaccine, to the economic recovery of Canada’s largest markets. Many things could and will happen that will either further exacerbate the Toronto condo rental market’s problems, or ease some of the pressure.