Good and Bad News for Condo Renters

Recently, condo market research firm, Urbanation, released their fourth quarter and annual condo rental report, announcing an all time high for condo leases in 2014.

In the fourth quarter, condos rented through the MLS system saw an 11% year-over-year increase, while all of 2014 saw a 15% increase. There were 22,765 condo rentals in the GTA last year, and that doesn’t include rentals through websites like Craigslist and Kijiji, and even word of mouth referrals are unaccounted for.

The interesting thing is that inventory is rising and rent prices are right there with them. In this scenario, some would expect to see average rents on a slight decline to account for the amount of competition in the market, but the demand is just too strong for prices to drop significantly. That said, the prices didn’t necessarily rise that much either. In the fourth quarter, average rent went up 1%, ending at $2.39 per square foot. For the year, rent only went up 0.8%, a definite slowdown considering the 4.1% jump we saw in 2013 and the 3.7% increase in 2012.

So prices went up slightly, but the absolute average decreased 0.7% to $1,816. This is the fifth consecutive quarter of year-over-year declines, but it’s not because of a lack of demand and a high inventory; it’s because the average size of condo units is getting smaller. The scary part for renters is that while the absolute average decreased just 0.7%, the average unit size decreased 1.5% (the average rental unit was 761 square feet in the fourth quarter). So, if you’re thinking of renting, you will have a decent amount from which to choose, but you’re options are getting physically tighter.

“The condo rental market grew into its shoes in 2014. Demand proved strong enough to absorb the market’s greatest amount of new supply in history, while also revealing an equilibrium for rent levels. The rental market’s proven stability and consistent growth is encouraging as we remain in a scenario of high condo completions over the next couple years,” says Shaun Hildebrand, Urbanation’s Senior Vice President, in the report.

As Hildebrand points out, the GTA is expecting a high number of condo completions in the next couple years, and it’s fair to say that many of the units are smaller. The reason the units are smaller is because all the condos that are nearing completion were sold in a time when developers were marketing to investors. According to Urbanation, some developers sell more than 70% of their units to investors. It was not uncommon to pack as many small units into a building as possible and sell them off to investors who never planned on living there in the first place, and this still occurs today occassionally, maybe even more often than it should. Only last year did developers refocus their marketing on first-time homebuyers and end-users. In a few years, when the condos launched last year and this year near completion, the average rental size may see some growth.

Now that we’re in a year where those looking to rent and those looking to buy have the same thing in mind, as far as location, amenities, and size go, it will be interesting to see how many potential renters end up becoming homebuyers, and vice-versa. According to our own What Matters Most to Condo Buyers survey, most condo buyers are looking for a unit ranging from 701 to over 1,000 square feet, fitness facilities and personal balconies are key, and most want to live near a park. It’s probably pretty safe to say that condo renters have the same in mind when hunting for a new place.

How will the condo rental market fare in the first quarter of 2015? We’ll have to just wait and see!