Ben Myers of Bullpen Consulting.

The average monthly residential rent in the Greater Toronto Area (GTA) declined for the eighth straight month to $2,194 in July and is down 8.7 per cent annually, according to TorontoRentals.com and Bullpen Research & Consulting‘s latest Toronto and GTA rent report.

Five regions have experienced double-digit annual rent drops: East York at 16 per cent; North York at 12 per cent; Oakville and Toronto at 11 per cent; and Mississauga at 10 per cent.

The biggest drop in rent was in a large swath of south-central Toronto containing much of the most recently completed new condominium supply. Downtown has lost some of its value as more people work from home and not in the area’s office towers.

“I think it’s short-term and people will still want to be downtown where the action, the entertainment and the amenities are, but right now there’s no baseball, concerts, festivals or downtown events that really draw people to being in the core,” Bullpen president Ben Myers told RENX.

“Until that stuff comes back and offices are all opened up with everyone back in there, downtown is going to be suffering.”

Myers said a decrease in immigration, a decline in university students downtown, a slower job market and the collapse of the short-term rental market are expected to have major impacts on the demand and supply of downtown condo and rental apartments.

“People who would have sold their houses and cashed out and moved to a downtown condo are now probably putting off that decision,” said Myers.

Disconnect between ownership, rental markets

There currently appears to be a disconnect between the ownership and rental markets in the GTA.

Short-term thinking as more people work from home has shifted demand to secondary locations with larger and less expensive suites.

However, Myers said continued ownership demand reflects a long-term mindset, that buyers expect Toronto will return to its pre-pandemic desirability when things get back to normal.

The report also breaks down the changes in the various types of rental housing;

* Landlords asked for $260 per month less for condo apartments on average in the GTA in July compared to a year earlier;

* The average single-family property was more than $350 cheaper per month, although townhouse rents were slightly higher;

* After a three-month COVID-19-related dip from April to June, the average rent for purpose-built rental apartments was $35 higher in July versus the same month in 2019.

The July data indicates more strength in the GTA condo resale market, with sales up seven per cent and prices up nine per cent annually.

“If the rental market continues to slump and the retail market is good, I imagine some investors will start selling their units,” said Myers.

“A lot of investors who are buying now are doing it for capital appreciation, at least in the short term.”

Condo unit price growth may slow

While there have been a number of successful new condo launches since April, Myers said anecdotal evidence and commentary from top brokers suggests some of the steam is coming out of the new condo market.

Buyers are becoming more price-sensitive and investors are looking for projects priced below early-2020 levels.

“There’s just been so much (price) growth over the last four years that it’s hard to anticipate that kind of growth continuing, especially with the relationship between where rents and new condo prices are,” said Myers.

“I would expect some softer growth for new condo prices and that should cause some investors to purchase less units.”

Units completed this year average about 580 square feet, down from about 635 in 2019. The $3.78 per-square-foot rent for buildings completed in 2020 is lower than buildings completed from 2016 to 2019.

Short-term rental market

A number of very small studio units in prime downtown condos typically command very high rents per-square-foot, but face more competition as units previously used as short-term rentals flood the market.

Myers believes it will be a while before the short-term rental market makes a strong comeback in Toronto. He’s been surprised by how many Airbnb listings are still posted.

“We’ll see when the borders are opened back up and the types of events that attract visitors come back. If there’s money to be made, investors will put those units back on the short-term market.”

Apartment starts are up

Through the first seven months of 2020, there were 15,471 apartment starts (4,018 rental, 11,453 condo) in the Toronto Census Metropolitan Area (TCMA), up 19 per cent over the same period last year.

It’s the third-highest annual total over the same period to start the year. This is especially significant considering the COVID-19-related slowdowns and restrictions on construction activity.

“The construction industry will be chugging along for at least the next four years,” said Myers. “So if there’s any COVID-related impact, it won’t be felt until 2025. It’s such a lagged marketplace.”

Canada Mortgage and Housing Corporation data shows 99.7 per cent of condos completed in Q1 2020 were sold at the time of occupancy.

Based on the strength of the pre-construction market over the last five years, there won’t likely be issues with completed and unsold developer inventory due to COVID-19.

More condo rental supply has entered the market and an expected major increase in completions over the next 18 months could further drive down rents and potentially impact sale prices.

“I think developers are going to have to really narrow in on where that value is and where that price should be on their project,” said Myers. “The pricing mindset is going to have to change.”

From 2016 through Q1 2020, Toronto condo projects were regularly selling 70 per cent of their units within two or three weeks of launch.

However, new condo launches might need longer-term marketing plans since units might not sell as quickly as in the past, Myers said.