Rents continued to soar across the Greater Toronto Area (GTA) in the second quarter of 2023, pushing prices to record highs as vacancy rates remained low.

According to new data from Urbanation, the average rent for condominiums in the GTA rose to $2,803 in Q2, a new record high for the region.

At 12.6%, the annual rate of rent growth was slower than what was seen in Q1 (13.6%) and Q4 2022 (16.9%), but marks the seventh straight quarter of double-digit rent inflation. Over the last two years, condo rents in the GTA have jumped by 31.7%.

With rents on the rise, demand for smaller, less expensive units soared. Condos under 400 sq. ft experienced the fastest annual rent growth, at 15.1%, with average rents rising to $2,121 in Q2.

Units between 400 and 499 sq. ft followed, with rents rising 14.0% annually to $2,309. In comparison, condos over 1,000 sq. ft saw rents increase 10.2% year over year to an average of $3,991.

Within the purpose-built rental space, newer units completed since 2005 saw a similar level of annual rent growth compared to condos, at 13.3%, which pushed average rents to $2,944 in Q2.

The vacancy rate in such buildings was 1.9% in Q2. Although it was a slight increase from the 1.5% recorded a year ago, it marked the sixth consecutive quarter with vacancy rates below 2%.

Across the GTA, construction broke ground on just two purpose-built rental projects in Q2. Equating to a total of 798 units, it's a 49% decline from Q1, which saw 1,555 starts, and is 32% below the quarterly average seen since 2018 of 1,174 starts.

There was a total of 19,263 rental units under construction across the GTA in Q2, a drop from the multi-decade high of 19,686 units seen in Q1.

"The GTA rental market has been on a tear for two years now, with little relief in sight," said Shaun Hildebrand, President of Urbanation. "Starting off as a recovery from the pandemic, rents are now being driven to new highs on interest rates hitting their highest level in 22 years, the population increasing by a record pace, near record-low unemployment, and scarce supply."

Record-high rents and strong population growth are encouraging investors to hold onto their units despite rising interest rates and mortgage costs.

During the 12 months ending in June 2023, 17,542 newly completed condos were registered in the GTA, 36.5% of which were leased through the real estate board. The share of leased units was a record high, Urbanation said, despite the fact that the majority of Toronto condo investors are cashflow negative.

According to a separate Urbanation report, published alongside CIBC Economics, 52% of investors are in a position where the rent they collect from tenants is lower than mortgage costs, condo fees, and property taxes.