Has The Rental Market Bottomed?
Yes. Yes it has.
I've always wanted one of my blog posts to simply be one word. And while that probably isn't the best strategy for being found on Google, sometimes it's all that needs to be said.
Has the rental market in Toronto bottomed? Yes.
Doesn't make for a very interesting blog post so as someone who never tries to predict a market, let me tell you why I feel so strongly that the rental market in Toronto has started to see signs of life again.
I do a ton of rentals. A lot of agents won't touch a rental client because they feel it's too much work for too little money. But my business model is actually built around rentals. In the past 12 months, literally half of my buyer or seller clients have been previous renter clients, or direct referrals from previous renter clients. It's basically how I stay in business so I will never say no to a rental. Plus, how can someone realistically call themselves a "condo expert" and not be completely in sync with the rental market? Condos and rentals go hand-in-hand in Toronto. The rental market is a huge component of how and why the condo resale market works so to not be active on the rental side of the equation is a mistake to me.
In the past 6 weeks or so, I've done 13 rental deals for both landlords and tenants. And I can tell you that I'm seeing a shift. 6 months ago I couldn't give my rental listings away. We tried everything - free rent, temporary discounts...seemed like nothing worked. But heading into the Spring, I started to get more calls from renter clients who had moved home when the city shut down to save money and were now starting to look at a return downtown. What was even more interesting is that more and more of these clients were saying to me "Adil, I want to lock in a great rent before they go up again." That was very telling. Renters were starting to notice that rents were getting "cheap" enough and they didn't think prices would go down much further. Make no mistake, Toronto is not "cheap" by any means but relative to where things have been for the past several years, it's much more affordable now. Or at least it's less crazy expensive.
For all these rentals that I've done recently, I know exactly why those tenants chose to rent right now. The reason for people choosing to rent when and where they do is hugely important because it can show where the market is going and how demand is shifting.
Here's the breakdown:
2 renters simply wanted to try new neighbourhoods
5 renters were moving to Toronto for a new job
3 renters wanted to find a new place closer to their office
3 renters were moving back downtown after moving home for several months
Now I know you can make numbers say whatever you want, but 8 of these 13 folks who I've helped recently were moving to be closer to work (or were coming to Toronto for their new job). If "working from anywhere" was truly here to stay, why are these folks physically coming to Toronto? I'll tell you why. Because their companies have said they will need to come to the office again and people want to be in Toronto. Not in the 'burbs. Not in their parent's basement. They want city life back. And they want to walk to work, even if they may not need to be in the office every single day for a while.
What I found very interesting is that none of my rental deals were people looking for a cheaper place than where they are now, which was a huge "thing" in the fall of 2020. Stubborn landlords who wouldn't reduce the rents for their tenants were seeing their tenants simply move down the hall or across the street for literally hundreds of dollars less per month. That phenomenon has stopped mostly because landlords realized that they are no longer in charge of the supply and demand dynamic.
What's also interesting is that none of the deals involved renters who were being forced to move because their landlords sold their units. That being said, I'm working with two new renter clients as we speak who are in that exact situation and I feel like it will become a larger piece of the renter pool as resale prices continue to rise and some landlords choose to cash out after a painful 12 months of being a landlord. Stay tuned on that.
So what about rental prices?
I can say for certain that, while rent prices may not be noticeably going up, they have stopped going down. And before rents can start going up, they needed to stop going down. Last week alone I was standing in three different rental units with three different clients when I got the notification "property leased, no more showings". That hasn't happened to me in a while. And I've also started to notice rentals that had been sitting on the market for literally weeks getting snapped up. I'm seeing a shift and prices are almost certainly higher than they were in the fall of 2020. So yes, rental prices have bottomed and probably did so a couple months ago. But don't get greedy as a landlord. If you price even the slightest bit too high, you still won't get any bites. Inventory is still in favour of renters...for now.
All that being said, there is one thing that could slow an immediate bounce-back of the rental market. And that's newly completed condos adding more supply to the market as we speak. I've shown in several brand new buildings lately and those building were predominantly purchased 4, 5, 6 years ago by investors who had always planned on renting out their units. And while they probably aren't getting the rents they envisioned, they are going to rent them out. New buildings always bring a flood of new inventory to the rental market and, even in the best market, create an imbalance with the sudden influx of units. So these new buildings will likely absorb a lot of the rental demand that would have otherwise gone into existing buildings, creating a dampening effect on the rental market recovery.
But what I'm also seeing more of is renters asking me to help them find places specifically in rent-controlled buildings. Any unit that was first occupied prior to Nov 15th, 2018 is rent-controlled. And the majority of my recent renter clients are actually avoiding newly constructed condos, even if the rent is amazing, simply because they don't want to get hit with a massive rent increase 12 months from now. It's a conversation I have with almost every renter client I work with these days and it's definitely something to watch going forward as rents start creeping up again. Feels like rent-controlled buildings will see more demand as tenants look for long-term price stability.
What Toronto really needs for a full rental market comeback is a return of immigration. Schools need to reopen. Office towers need to reopen. Then we'll see a full recovery.
But I'm seeing signs of life in the rental market that are telling me that renters aren't waiting for the recovery to take place before they start locking in some good deals while they still last.
Have you checked out my previous blog posts?
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)