What's Happening in Toronto's Rental Market?
For the first time in a very long time, rents are going down in Toronto.
How many of my blog readers or social media followers out there are landlords? I'm a landlord myself for multiple units and I'm not gonna lie, I was worried when April 1st was approaching. Would my tenants pay their rent? How many would pay? There were many landlords across the city who were facing the very real possibility of their tenants either being unable to pay, or simply refusing to pay because of these awful rumours floating around social media that there was a "rent holiday" in April.
And mainstream media did nothing to help the situation, choosing to focus on the very, very small tenant groups out there who consistently and actively look for ways avoid paying rent. I'm not going to get into a debate on the merits of those arguments but the vast, vast majority of tenants out there (mine included) are hard working, respectable people who always pay their rent on time. And if there was ever a situation where that wouldn't be possible, we'd figure something out. We're all people. Everyday landlords are not greedy, rich fat cats trying to squeeze every penny out of their tenants but some tenants feel otherwise and chose this global pandemic and financial emergency to make their voices heard (and oddly enough often times making themselves look foolish with their justifications).
May 1st just came and went and a lot of people's financial situations have deteriorated since April (both landlords and tenants) and the same panic set in about whether my tenants would or could pay their rent again. It's not pretty out there for a lot of people, but I think everyone should help where they can. We're all in this together.
I've been asked almost daily "how's the market? Are prices dropping? Do you think prices will come down in a few months?" And my response is always the same. After a short speech about how sales are still happening in both the condo and freehold market, how freeholds are actually still experiencing bidding wars and selling over asking, and how some condo buildings are not even allowing physical showings which makes it close to impossible to actually sell those units, distorting the market (topic for another blog), my final statement is always - "but I honestly have no idea". Nobody does. This situation is not anything like Toronto has ever seen and there is absolutely no way to predict how buyers and sellers will react once the lock-down is lifted and people are allowed (and feel comfortable) to leave their houses again. Will people rush to buy? Will sellers rush to sell? It's too early to tell. Sales right now are sparse and choppy, and so are sale prices. Some sales are below what you might expect, and some are above. And multiple offers are still a thing. It's just not the truly liquid market that we need to really understand demand and price trends and where things are headed. So we wait.
But one thing is clear - rents are down. In some cases significantly. I'm sure this isn't what any landlord wants to hear and I will tell you that it is not a fun time to be a landlord right now with a vacant unit anywhere in the city. I wrote a post back in January when I was already starting to notice a slowdown in the rental market and was wondering why nobody was saying anything about it. Check it out if you have a chance - Could Rents in Toronto Actually Go Down in 2020? The timing of the rental slowdown in early 2020 wasn't due to any major economic changes in the city (except perhaps a change to AirBnB regulations) but I think rents were just getting too high and newly completed condos were bringing hundreds more new units to the market all at once. Supply increased, demand stayed flat and the market slowed. Then the pandemic hit. And people stopped moving.
I mean think about it. The vast majority of people who are looking for rentals in any city, specifically Toronto, are typically people who have found a new job and want to be closer to work (usually in the core), or just graduated from university and moving away from home for work, or couples moving in together (often times accompanied with the desire for one or both of them to be closer to work). It's all about jobs. People move for their job. People come to Toronto for a job. I help dozens of tenants every year who are moving to Toronto for a new job from outside Toronto, outside Ontario, and even outside Canada. But I can't name a single company who is hiring right now. Can you? So who is actually moving?
Let's go to the numbers because you can't argue with numbers.
I'm going to focus on 1-bed units because that's the most active segment of the rental market. Let's also define "the core" as east of Bathurst, west of the DVP, south of Queen, down to the lake.
- In April 2019, there were 559 1-bedroom units listed for rent in the core of Toronto.
- And 453 units were rented.
That means there was an absorption rate of around 81% for 1-bed rental units in the core in April 2019.
Worth noting: Of these rented units, only 33 units (or 7.3%) were leased for under $2000/mo.
How did April 2020 look? It wasn't pretty.
- In April 2020, there were 715 1-bedroom units listed for rent in the core of Toronto (a 27.9% increase from April 2019).
- And just 204 units were rented (a 55% decrease from April 2019).
That means the absorption rate dropped to around 28.5% for 1-bed rental units in the core in April 2020.
Of these rented units, 43 units (or 21%) were leased for under $2000/mo (as compared to just 7.3% in April 2019).
- And what's even more eye-catching is that right now there are a whopping 1,106 1-bed units on the market for lease in the core.
This breakdown might be a little more helpful. It shows every 1-bed rental unit on the market in "the core" right now and the respective list prices:
I also found this interesting... 29.1% of all 1-bed units on the market right now are listed for $2100/mo or under. That's 322 units available for $2100/mo or less, right now, just in "the core" as I defined above. I can't remember the last time there was this much 1-bed rental inventory available at this price point.
Now we're certainly not in a normal market but these numbers should give pause to any landlord who thinks they have any sort of pricing power right now. Rents have and will continue to come down until most of this supply can get absorbed.
That's not a prediction - that's just math.
Have you checked out my previous blog posts?
Your Toronto condo lover,
Sales Representative iPro Realty Ltd, Brokerage Direct: 647-223-1679 (call/text) Email: Adil@AdilKnowsCondos.com