Developers are pushing out condo inventory at a “record” pace in the Greater Toronto and Hamilton Area, and this is having a significant effect on rent.
Urbanation’s rental market report for the third quarter, released Wednesday, shows that there were 23,473 new condo units registered across the GTHA between January and September. That figure represents a 132% increase over the same period last year (when there were 10,098 units registered), and a 67% increase over the 10-year average (14,087 units) for the same year-to-date period.
Meanwhile, 22,939 condo units were listed for rent in the third quarter alone, representing an increase of 52% year over year.
Amid that surplus of new and active supply, average condo rents in the region slipped 3.8% last quarter (over Q3-2023) to $4.04 per sq. ft. In addition, the “average monthly cost of a condo rental leased” in the third quarter came down 5.7%, year over year, to $2,762, while the average unit size decreasing to a record low 684 square feet.
“Despite the recent decline, average psf condo rents remained 4.7% higher than two years ago and have increased 17.4% over the past five years,” Urbanation said.
Most new condo supply was delivered in the City of Toronto last quarter, the real estate consulting firm also noted. There, average condo rents fell 4.8%, year over year, to $4.18 psf, which pencils out to about $2,805 for 671 sq. ft. The story was a little different in the 905 region — it includes cities such as Brampton, Markham, Mississauga, and Oshawa, and Hamilton — where average rents edged up 0.5%, year over year, to a “record high” of $3.69 psf. That translates to around $2,652 for 718 sq. ft.
Breaking down the data by unit type, Urbanation reports that studios saw average condo rents decline 7.3%, year over year, to $5.36 psf (or $2,102 for 392 sq. ft.) One-bedroom rents fell 3.9% to an average of $4.19 psf (or $2,494 for 595 sq. ft), two-bedroom rents fell 3.7% to an average of $3.80 psf (or $3,174 for 835 sq. ft), and three-bedroom rents fell 0.8% to $3.69 psf (or $4,023 for 1,089 sq. ft).
None of this bodes particularly well for condo investors — current or aspiring. We already know that the lion's share (77%) of condo investors in the GTA were cash flow negative in 2023 as their monthly mortgage dues outpaced rental income, according to a July report from CIBC’s Benjamin Tal and Urbanation’s Hildebrand. The report also underlines that many of these investors haven't seen a profit from their income properties since 2021-2022.
On the purpose-built rentals side, the realities were better, but not by much. For purpose-built rentals completed since 2000, average rents ended the third quarter down 2.2%, year over year, to $4.09 psf, (or $2,959 for 723 sq. ft.) In the City of Toronto, rents dropped 2.9% to an average of $4.52 psf, (or $3,110 for 689 sq. ft.)
Similar to what was observed of new condos in the 905 region, rents for new purpose-built rentals ticked up slightly to 0.6%, year over year, to an average of $3.34 psf (or $2,647 for 792 sq. ft).
Wednesday’s report also shows that purpose-built rental completions ended the third quarter at more than a 30-year high of 2,319 units.
“The latest quarter provided a good lesson that large increases in supply can bring down rents,” Hildebrand said in a release. “However, this should be viewed as a temporary adjustment as completions for both condos and rentals will begin to fall dramatically in the coming years given the latest trends for construction starts.”
