A new report released on Monday by Urbanation reveals just how turbulent 2020 was for GTA ’s purpose-built and condo rental markets.
The Q4-2020 GTA Rental Market Report by Urbanation tracks lease transactions and listings activity within registered condominium buildings in the Greater Toronto Hamilton Area.
What’s clear from the report is that the pandemic has significantly changed conditions within the rental market across the GTHA in 2020.
The report provides a detailed look at both the purpose-built and condominium rental markets.
Pandemic Pushes Rental Rates Lower and Vacancy Rates Higher
The purpose-built rental market took the biggest hit within vacancy rates rising above 4% for the first time in over 15 years, climbing to a high of 5.7% in the City of Toronto. This represents a significant increase to the 1.1% vacancy rates a year earlier in the fourth quarter of 2019.
The overall vacancy rate for the GTA was 4.6% in Q4 2020, which is an increase from the low of 1% experienced in 2019. Within the 905 region of the GTA, vacancy rates climbed to 2% in the fourth quarter compared to the ultra low 0.8% rate back in Q4 2019.
Urbanation says that this new information on vacancy rates within the purpose-built market is a 50-year high when looking at CMHC’s survey data from 1971.
Meanwhile, the GTA condo market also experienced significant market softening with rents declining 13% annually in the fourth quarter.
The data on condo rentals also shows us that rents continued dropping despite having a record volume of lease activity in 2020.
In the City of Toronto, there were a total of 9,580 condo leases in Q4, which represented a year-over-year change of +87%. There were also 6,893 active listings and 2.7 months of rental supply. The average condo rent in the City of Toronto was $2,083 for Q4 with an average square footage of 689.
Surprisingly, condo rental lease transactions increased 25% in the GTA, reaching a record high of 38,366 units. However, at the same time there was also a 46% increase in the number of units that were available for rent, which led to a 162% increase in year-over-year active listings to a record high of 8,066 units.
Average condominium rent prices declined 14.1% year-over-year to $2,076 in the fourth quarter across the GTA. When looking at the data on a per square foot basis we can see that the drop in average condo rents hit $2.95 per square foot, which is the first time rental prices have gone below $3.00 PSF since Q1-2018.
In terms of the average change in rental rates for the entire year of 2020 we can see that there was a decline of 6.8%, which ultimately erased the 6.9% gain averaged back in 2019. Despite this sharp decline, the 10-year average annual growth rate for the GTA rental market remained above 4%.
Overall, the downtown rental market was the hardest hit within the GTA in Q4 with average rental prices dropping 17.2% to $2,104 ($3.14 PSF) on an annualized basis.
The areas surrounding the 416 region, including Scarborough, North York and Etobicoke, also saw average rents decline year-over-year by approximately 12.7% to $2,036 ($2.78 PSF) in Q4-2020. And in the 905 region there was also a moderate decline in annual rents of 4.9% to $2,050 ($2.69 PSF).
Comparing the 905 to the 416 region we can see from this data that average rent growth in the 905 was relatively strong at 5.8% over the past 5 years, while the former City of Toronto averaged 2.3% in the same time period.
Job Losses Contribute to Higher Vacancy Rates
The unfortunate consequence of the ongoing pandemic is that many people have lost their jobs.
In the month of December 2020 alone, Canada lost 63,000 jobs as COVID-19 cases increased, bringing the unemployment rate to 8.6% compared to 8.5% in November 2020.
According to Statistics Canada, December was the first month Canada lost jobs since April 2020 when there were nearly 2 million jobs shed because of pandemic lockdowns.
Statistics Canada recently released a three-month seasonally adjusted moving average for unemployment rates for major cities that showed Toronto’s jobless rate was 10.7%.
Not only are unemployment rates high, but the data from Statistics Canada also shows us that young workers across Canada experienced the highest job losses with an unemployment rate of 17.7%.
This is significant because this demographic tends to have a higher representation in the condo rental market.
When young workers are facing unemployment there will of course be weakening demand for condos with higher rent prices.
This downward pressure on condo rentals will of course impact vacancy rates across Toronto and in nearby municipalities.
Pandemic Increased Population Outflow
While unemployment rates were rising, there was also another interesting trend happening with population growth in major cities like Toronto.
With the pandemic forcing businesses and offices to close their doors, more people were working from home.
This work-from-home trend contributed to the outflow of people from places like downtown Toronto where there wasn’t an immediate need to live downtown.
Statistics Canada recently released migration data that showed in the 12-month span ending July 2020, Toronto had a total outflow of 50,375 people. Many of these people moved to the suburbs such as Oshawa, which saw a 2.1% population growth.
It is important to point out here that the rise in population outflows from cities like Toronto were a result of high unemployment, a near halt in the number of post-secondary students in the downtown, as well as low immigration.
All of these factors had a significant impact on demand for condo rentals as a whole.
Message for Investors
All of this information may seem alarming to investors, but there is light at the end of the tunnel.
There is no doubt that the GTA rental market experienced a lot of challenges in 2020 due to COVID-19.
The data from Urbanation helps investors understand the context as to why the market is fluctuating.
As we see more people getting vaccinated and restrictions relaxed, there will eventually be higher levels of immigration and strong population growth back into Toronto.
This strong population growth will see post-secondary students returning to their physical campuses, which will add to the demand for condo rentals.
Also, as pandemic restrictions ease, more employers will feel confident hiring new workers and will want to have their employees return to the office - even if it is on a hybrid basis.
So while there is no doubt that rental rates will take time to recover to pre-pandemic levels, there will be a gradual rise in rates as things return to a new normal.