As the lockdown put people out of work, slowed migration and shut down demand for Airbnb, the effect on rental units has been rapid. There been a slowdown in people looking for rental apartments, creating less demand. And with more condos and purpose-built apartments available, there is also more supply. I will examine the short and long-term implications below.
Average rents in Toronto were flat at $2,375 at the end of March and they have dropped in April about 3.5% compared with a year ago. Some are forecasting average rents to be down about 5-10% in 2020.
Demand has been significantly affected by this pandemic:
- Toronto’s Labour market has been hit hard pushing potential tenants to stay with family or roommates.
- Travel restrictions have dropped immigration from 100,000+ to a forecast of 65,710 for 2020.
- Lease activity is down more than 70%.
At the same time supply has increased
- Furnished apartment listings in April were up about 90% compared with April 2019. This is a direct result of the ‘Airbnb impact’ as the freeze on travel is pushing investors to put these units up for long-term rental.
- There have been a record number of building completions in Toronto. An anticipated 25,000 to 29,000 units were expected to be available by the end of 2020. A 100% increase over 2019. Even with delays 20,000 new units are expected to hit the market this year.
- Investor-owners are also facing competition from a growing number of purpose-built rental units coming online in 2020.
“As rental demand declines as job losses mount, incomes are reduced, and immigration shrinks, the slowing in the GTA rental market that appeared in the last half of March will progress for at least the next few quarters given the current economic outlook.”
I the longer term however, we can expect the rental market to recover:
- The GTA will continue to attract a sizeable number of immigrants, who make up a significant percentage of those who rent.
- Despite record building completions we are still forecast to have a shortage of 15,000+ units/year over the next 10 years.
- The Conference Board expects Toronto’s labour market to recover to some extent next year, with employment growth of 2.7%.
“The long-term trends beyond the direct impact of COVID-19 are still positive for Canada. Big investors, like REITs, look at revenue in a longer time frame and, though they may slow development, the longer-term outlook for rental still makes sense for these investors.”
“This is not a recession in the traditional sense of a recession. This is a health crisis that carries with it some of the similar financial challenges, but the rebound effect should be much quicker and stronger. We are still dealing with an under supply of homes in a market with high demand. Real estate investments are still seen as a stable investment with strong future growth.”
I think this could mean a buying opportunity in the condo market. But my biggest fear is that as buyers come back to the housing (freehold) market, the listings do not.
It is still a great time to think about buying and why not take the opportunity while it’s here to negotiate with Sellers who are more than interested in selling?
There are a number of opportunities ready and available, just send an email or book a virtual coffee and we’ll start the discussion. 😊