Condo Rental Supply Decreased and Rents Increased
Condo rental supply in downtown Toronto dropped in August, with completed lease transactions dropping 12.9% compared to July, and 16.5% compared to August 2021. This decrease in supply is likely a result of (1) tenants who locked in their ‘pandemic rent rates’ staying in place and (2) some would-be-first-time-home-buyers who have been unable to make a move with rising interest rates.
This decrease in supply has occurred at the same time as the typical August demand from college and university students, but also at the same time as many young professionals are being called back into the office. This combination of constrained supply and outsized demand pushed average rents up 3.47% from July and up 18% from August 2021. Average rent for condos in Toronto now sits at $2,990.
2 Bed condos saw the largest MoM % increase in average rent, followed by 1 + Dens, Studios, 2 Bed + Dens and 1 Beds and 3+ Bed condos dropped 2.6% from the previous month.
Our team is seeing five trends in this constrained rental market.
1/ Offers Site Unseen
In August, 25% of leases completed within 2 days of the listing hitting the market and 36% within 3 days. The average days on market overall rose slightly from July to 8.4 but was still well below the 6 month trailing average.
Since most agents don’t update a listing as sold until the deposit is received, this data suggests that tenants are submitting offers to lease within 24 hours of a listing hitting the market to have any chance of securing it. And since a large portion of these units would be tenanted and require 24 hour notice before a tour, there is even less time to deliberate. All of these factors have caused an uptick in tenants submitting offers and even securing leases without ever having set foot in the condo.
2/ Bidding Wars
Almost every rental transaction our team was involved with in August saw multiple offers (aka “bidding wars”), where tenants would resubmit an ‘improved offer’ – sometimes 2 or 3 times – in an attempt to secure a condo over other competitive offers, similar to the resale market frenzy earlier this year.
3/ Tenants Submitting Multiple Offers at Once
With such an imbalanced rental market, some tenants and agents are becoming frustrated after submitting 5 or 10 unsuccessful offers. This is prompting them to resort to unethical tactics to secure a lease, namely, submitting offers to multiple condos for lease at the same time and then abandoning some of them if they are accepted at more than one.
4/ Tenants Are Offering Huge Deposits
In Ontario, it is typical for landlords to require two months’ rent as a deposit that is credited against the first and last month of rent. But lately we are seeing tenants offering multiple months of prepaid rent to try and set themselves apart from their competition. Sometimes large deposits are expected for tenant applicants without income, rental history, Canadian credit history or co-signers, but in this market even tenants who check all of those boxes are putting forward sizable deposits.
5/ Pandemic Rent Rates are Causing Landlords to Push Tenants Out
Some landlords have been pressuring their tenants to move out in order to capture rent appreciation after the pandemic from a rebounding rental market . Many landlords lowered rents during the pandemic to entice tenants to stay in place rather than move home or to cheaper units away from urban centers. There are now many tenants that are locked into a ‘Pandemic Rent Rate’ and have no incentive to move as they would likely be paying 20-30% more for the exact same condo in today’s market. Anecdotally, we have heard of many situations where landlords tell their tenants that they need to vacate as they or a family member would like to move in or that they will be selling the condo. After the tenant agrees to vacate, the condo pops back up on the MLS for lease at today’s market rent (20-30% higher than what the tenant was paying). While this is illegal, most tenants either are not aware of that or don’t want to deal with the stress of fighting the landlord about it.
Every month Fox Marin produces a Downtown Toronto Condo Rental Report for the benefit of landlords and tenants to help track changing rental market trends. All data included in the report is pulled from the Toronto Real Estate Board’s MLS system.
If you would like to download the full Report please send an email to info@foxmarin.ca or visit our Leasing Page.
