Canada’s hot apartment sector: Building boom, rising rents

IMAGE: Rentals.ca and Bullpen Research have created a forecast of projected rental rate increases for many markets across Canada, and some secondary Ontario cities. (Courtesy Google Street View)

Rentals.ca and Bullpen Research have created a forecast of projected rental rate increases for many markets across Canada and some secondary Ontario cities. (Courtesy Google Street View)

How much can renters across Canada anticipate paying for their apartments in 2020? Rentals.ca and Bullpen Research & Consulting have used their experience and expertise to create forecasts for the country’s largest cities and some Ontario secondary markets.

Developers and investors have been moving to increase rental supply to offset demand brought on by more stringent mortgage qualification rules, the resulting decrease in mortgage credit and Canada’s growing population during the past two years, according to the report.

At the end of Q3 2019, Canada Mortgage and Housing Corporation reported nearly 72,000 rental units under construction in Canada. That’s the highest rate in more than 30 years.

The annual growth rate of 21 per cent in the third quarter of 2019 was the highest since Q2 2016.

Rental construction to remain strong

“I expect rental construction to remain strong,” Bullpen president and owner Ben Myers told RENX.

“The GTA will see additional strength, as some developers are a bit nervous about the new condo market and want to start building more rental apartments to spread their risk, especially with new equity capital sources willing to share that risk and other patient capital sources looking at forward sales.

“Additionally, several of the old family apartment owners are looking to densify their existing sites as the numbers finally make sense. And a loss of parking on-site won’t impact their existing rental rates as the younger generation of renters ditch their cars for transit and ride-sharing.”

Increased development charges and land, construction and labour costs continue to make it difficult for developers to build apartments which can be rented at prices tenants are willing to pay.

As a result, many new rental apartments are being built on land owned by developers for several years.

“Developers have to build-in very aggressive rent growth to make the numbers work on any site they are acquiring today, which continues to be problematic for their lenders and financial partners,” said Myers.

Rentals.ca and Bullpen have prepared a forecast for 2020 that calls for national rent growth of three per cent.

Here are forecasts for apartment rents in key markets across Canada:

Vancouver

Through the first 11 months of 2019, the average rent in Vancouver was $2,351 and the annual increase was 6.5 per cent. The forecast is for a three per cent increase in 2020.

New apartment completions are expected to rise and, coupled with relatively flat resale market conditions, this should result in less rent inflation than during 2019.

“With the ownership housing market improving in Vancouver and expectations of no increases in the interest rate, we expect more renters to buy their first home in 2020 than they did in 2019, which should ease pressure off the rental market,” said Myers.

Calgary

IMAGE: Ben Myers of Bullpen Consulting.

Ben Myers of Bullpen Consulting.

The 2019 average rent in Calgary was $1,450 a month, and dropped to $1,381 in November — a decrease of 5.2 per cent year-over-year. Last year’s forecast anticipated a four per cent jump in annual rent growth.

“We incorrectly forecasted a rise in rates for 2019 based on decent population growth and the expectation that first-time buyers would shy away from purchasing a home in the face of decreasing prices and put upward pressure on rents,” said Myers.

“However, the struggling economy has likely resulted in fewer new household formations, as young adults stay living at home or with roommates, or choose not to move to a vacant property to forego the moving costs.”

The report forecasts a one per cent decline in rents in 2020, barring a miraculous improvement in the energy sector.

Edmonton

Rents in Edmonton dropped by 3.9 per cent from November 2018 to November 2019, and the average rent in the city was $1,257 through 11 months.

The forecast calls for average rent in 2020 to be $1,207 for all property types, with December 2020 rent at $1,165 per month, a one per cent annual decline. This forecast is similar to the zero growth forecast for Edmonton by Rentals.ca and Bullpen in 2018.

“We believe many of the same factors impacting Calgary apply to Edmonton as well,” said Myers.

Toronto

An 11 per cent increase was forecast for rents in Toronto in 2019 and the actual amount was 8.6 per cent. Condominium rents rose by four per cent, purpose-built rental apartment rents by nine per cent and single-family home rents by 11 per cent.

“With so much talk of renovations and landlord’s own-use evictions, there is no doubt that empty-nesters and boomers that are trading down to a smaller rental dwelling are going to insist on having security of tenure and look at purpose-built rental over leased condos or single-family homes,” said Myers.

He expects purpose-built rental rate growth to exceed that of condo rentals and single-family homes in 2020.

Rentals.ca and Bullpen expect December 2020 rents to average $2,770 per month, a seven per cent annual increase.

“Many more condominium apartment completions are expected in 2020, based on a four-year lag from the booming pre-construction condo market in 2016,” said Myers.

“The influx of new units will relieve pressure on the older rental stock.”

Because the supply of single-family rentals is relatively small and units for rent can range from 1,000 to 6,000 square feet, the average rent can be quite volatile.

“It is hard to tell if the rent growth is due to a supply and demand imbalance, or due to the change in the composition of units leased,” said Myers.

Mississauga

The previous forecast correctly anticipated a 10 per cent annual rent increase in Mississauga for 2019. The latest forecast calls for an eight per cent increase and an average rent of $2,585 per month in 2020.

“We expect new high-end supply to be added to the Mississauga City Centre at high rental rates,” said Myers.

“We expect more suite renovations by landlords, driving the value of units up, and we expect people leaving the City of Toronto for more affordable and larger units to bid the rents up in Mississauga.”

Ottawa

Rentals.ca and Bullpen had forecast a nine per cent rent increase in Ottawa in 2019, but the market saw a 0.5 per cent annual decline and an overall average rent of $2,032 per month.

“We didn’t anticipate the ownership housing market would be as strong as it was in Ottawa,” said Myers. “Clearly this rapid price rise incentivized tenants to purchase a property instead of continuing to rent.”

The 2020 forecast calls for average rent overall to be $2,042 per month, with December 2020 rent at $2,100. That would be a four per cent annual increase.

“The nation’s capital still has solid fundamentals in terms of job growth, especially in tech, and a poor pre-construction condo market a couple of years back has resulted in much fewer investor-held rental units from hitting the market,” said Myers.

“So, we expect rents will increase in excess of inflation.”

Montreal

Rents in Montreal increased by 24.4 per cent to $1,618 per month from November 2018 to November 2019. The 2020 forecast is for a more moderate five per cent annual increase, twice the rate of inflation.

“Montreal is getting more attention from institutional investors and investment trusts, as other markets have more rent regulations, entitlement restrictions and inclusionary zoning,” said Myers.

“The market is seeing high-end office and hotel conversions as well.

“In terms of private landlords, Montreal doesn’t have a non-resident buyers tax and offshore investors have taken an interest in buying condos to rent them out.”

Ontario secondary markets

Average rental rates nationally for all property types declined for the second consecutive month in November, but were still up 9.4 per cent annually.

The increases were supported by Ontario cities including London, Hamilton, Kanata, Burlington and Kitchener, which all experienced double-digit rent growth when considering all property types.

“The larger markets nearby push priced-out residents to move to these communities, increasing demand and pushing up rents,” said Myers.

“In a couple of these markets, a new luxury project opened that added hundreds of high-rent units to the market, which pulls the average rent up.

“The average rent for vacant units in smaller communities with fewer rental listings is not always representative of the overall rental market conditions. I would expect all of these markets to see a moderation in rent growth in 2020.”

Rentals.ca apartments data

The data used in the forecast is based on monthly listings from Rentals.ca, which includes basement apartments, rental apartments, condo apartments, townhouses, semi-detached houses and single-detached houses

The data is primarily based on the asking rents for vacated units, which is more representative of the actual market rent a prospective tenant encounters.

Properties listed for above $5,000 per month and below $500 per month are eliminated from the sample of units analyzed.

Short-term leases, single-room rentals and furnished rental units are also eliminated from the sample where identifiable.



Steve is a veteran writer, reporter, editor and communications specialist whose work has appeared in a wide variety of print and online outlets. He’s the author of the book Hot…

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Steve is a veteran writer, reporter, editor and communications specialist whose work has appeared in a wide variety of print and online outlets. He’s the author of the book Hot…

Read more




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