Thursday, October 16, 2014

Rental Condominiums are Not Just for Downtowners

By Pauline Lierman, Director of Market Research

The focus on the sheer numbers of condominiums rented—a record 22,302 units over the four quarters up to Q3-2014—is often on the rapidly growing downtown areas of the “416”, mostly in the neighbourhoods stretching east and west of Yonge Street. Indeed, 78% of all rentals in the past year have been in the amalgamated City of Toronto, 47% which were within the former City's boundaries.
But what about the suburbs, aka the “905”? The 22% of rentals in the Toronto CMA that occurred in the 905 Region since Q4-2013 represents a total of 4,838 rented units. For market areas still very much associated with single family household living, this total is not inconsequential. 905 rental growth is accelerating at a pace stronger than in either area. Four quarter rental activity in Q3-2014 in the 905 region was 24% higher than the previous four quarter period. In contrast, the 416 rate was 16%. As the chart shows below, condominium rentals in the 905 region grew at a higher rate annually than in the 416 and the entire CMA in the third quarter.

The momentum behind the growing share of 905 rentals relates to its burgeoning supply. New units from condo completions were added at a faster rate in the 905 than in the 416 over the last four quarters. While the overwhelming number of new units are still found in the 416, the area’s share of new rental units in the Toronto CMA fell from 80% to 70% between the current and previous four quarter periods. Consequently, the share of new rental units in the Toronto CMA in the 905 leaped from 20% to 30%. Higher supply tends to translate into an increase in rented units, and as the following chart shows, the share of rental transactions in newly registered building in the Toronto CMA has been rising in the 905, reaching 48% in Q3-2014. Over the past 12 months, newly registered rental units in 905 buildings comprised 34% off all new rentals, up from 15% in the prior 12-month period.

The trend toward more 905 condo rental activity can be expected to continue into 2015. New condominium sales surged in the 905 in 2011 and 2012 in a wide distribution of areas, from Markham City Centre to near the Vaughan Metropolitan Centre, Mississauga City Centre, along Richmond Hill’s Yonge Street corridor to as far west as Burlington and Milton, which will result in many new buildings. Occupied but not yet registered units increased 17% in the 905 region from a year ago, with 2,192 new condominium units nearing their final closing. With rental rates on average hovering around $2.00 psf in the main 905 market areas, all this new inventory will likely have an inflationary effect on this small and growing market.