As sales have iced over in recent months, real estate agents are looking to new tactics to keep their client pipelines alive -- and lease deals are now making up a much larger chunk of deal volume.
With interest rates on the rise, national real estate transactions have plunged 36% year over year in November, according to the Canadian Real Estate Association, and remain a whopping -40% below the market peak recorded in February. Declines are even more pronounced in Canada’s largest markets; the latest data for the Greater Toronto Area shows sales are -49% below last year’s levels, while Metro Vancouver activity is down -50% on an annual basis.
Drastically fewer deals are hitting agents squarely in the pocketbook -- 2022 commissions are on track to drop by $45,000 compared to last year, based on a forecasted total sales volume of $151B compared to $227B in 2021.
The rental market, meanwhile, is on fire. National rents surged by 12% in October, to an average of $1,976 across all property types -- 7% higher than that of the pre-pandemic high in November 2019. Of course, that runs a lot steeper in urban centers; tenants can expect to shell out $2,502 for a one-bedroom in Toronto, and $2,604 in Vancouver.
What’s more, agents are reporting the same kind of bidding wars reminiscent of early 2022, but in the rental market rather than ownership.
“When the market started to soften back in the spring, it was almost like the frothiness of the resale market was subdued and was transferred into the leasing market,” Andy Taylor, Senior Vice President of Sales at Sotheby’s International Realty Canada, tells STOREYS. “We were seeing apartments that would get substantially higher rents than they were a year ago -- 20 - 30% higher.”
That the leasing segment is experiencing steep supply challenges is only inflaming the issue. According to Claudio Castro, Managing Broker at Zoocasa, part of the issue is fewer homeowners are willing to become private landlords in today’s rental climate; despite being able to fetch high rents, long backlogs for cases the Landlord Tenant Board have more shying away from listing their units.
“There’s bidding wars everywhere for leases right now and landlords are being extra, extra picky about it. I’ve heard from some of our agents that are doing leases that they’ve got clients with an 850 score and a $100,000 income and the landlord is saying no,” he says.
“There are horror stories from the Landlord Tenant Board. Once you get somebody in there, you can’t get them out -- unless they’re good people, you’re stuck with them because the Landlord Tenant Board is so far behind,” he adds.
“I think a lot of that is a trigger effect as well for landlords in the sense of being so difficult, and that’s creating a bottleneck in terms of people going for leases. It’s a weird situation where, because of the market, people want to lease because it makes more sense right now, but at the same time, they can’t get a lease because they’re not accepted because of the Landlord Tenant Board situation and landlords.”
But lack of available leases isn’t stopping brokerages from pivoting to focus on rental in efforts to keep client pipelines moving and agents engaged.
“I think you’re seeing a lot of brokerages exploring alternatives,” says real estate analyst and agent Daniel Foch. “A lot of people are getting more into the leasing space, residential leasing has been pretty popular in Toronto and a lot of brokerages are encouraging people to just to that to keep the deal flow going… A lot of brokerages are trying to pivot into alternative revenue streams for sure, and are encouraging their agents to do the same. Coaching, stuff like that.”
At proptech brokerage Zoocasa -- where agents receive warm leads farmed from the website’s search platform rather than prospecting them themselves -- more are asking specifically for leads, says Castro.
Not only does that help buoy flagging commissions and stay active in the marketplace,” he says, but it’s a smart long-game approach, too.
“If you correctly nurture and stay in contact with your lease lead, that lease lead is going to buy a property from you in a year, two or three. That’s the longer play with the lease leads, is the fact that, yeah, they’re going to be a lease now, but I know that in a year or eve six months from now, they’re going to start looking to buy a house,” Castro says.
“It’s almost going back to square one and rebuilding your pipeline, so to speak.”