GTA Rental Market Slowed in Q4

TORONTO – January 23, 2024:  Urbanation Inc., the leading source of data and analysis on the GTA condominium and rental apartment markets since 1981, released its Q4-2023 rental market results today.

• Condo rents declined quarter-over-quarter by largest amount outside of COVID-19
• Annual rent growth of 4% moderated from its recent double-digit pace
• Purpose-built rental vacancy increased to a nine-quarter high of 2.5%
• Rental construction starts improved following the government’s removal of HST

Annual Rent Growth Moderated to 4% 

Average condo rents increased 4.5% year-over-year in Q4-2023 to $3.97 per square foot ($2,821 for 710 sf), a much slower pace of growth compared to the 16.2% annual increase in Q4-2022. While rents often decrease between Q3 and Q4 periods as the market transitions away from its seasonal peak during the summer, the 5.7% quarterly decline in Q4-2023 was the largest recorded by Urbanation since tracking the data in 2010 (other than in Q4-2020 during COVID-19).

The quarterly decrease in rents is likely related to a reduction in affordability following a 10% surge in rents that occurred during the preceding two-quarter period, which brought the average rent up to a record high $4.21 ($2,937 for 697 sf) in Q3-2023.

In the past year, there has been a dramatic decline in affordable rentals in the GTA. The number of condo units renting for under $2,250 per month dropped 75% in 2023 compared to 2022, with a reduction in leasing market share from 25% to 6%. The least expensive condo units renting for below $2,000 experienced a 91% plunge in lease activity last year, representing less than 1% of rental leasing in 2023. 

The purpose-built rental market for units built since 2003 experienced a similar softening as condominium rentals in Q4-2023. Average rents for units surveyed in Q4-2023 decreased by 3.5% quarter-over-quarter to $4.09 psf ($2,972 for 727 sf), while posting a 4.3% year-over-year increase. The annual rate of rent increase in Q4 for purpose-built rentals was at its slowest in two years.

Increased Supply in Q4 Helped Create More Market Balance

Supply began to improve in the final months of the year as the number of newly completed and registered condos surged 26% annually in Q4-2023 to 7,408 units, resulting in a 10% year-over-year-year increase in condos listed for rent. With lease transactions rising by a lesser amount of 4%, active rental listings at year-end increased 37% from a year earlier.

Market indicators suggested more balanced conditions emerged during Q4-2023. The ratio of condo leases-to-listings fell to an 11-quarter low of 71%, the average time on market rose back to its 10-year average of 18 days, and months of supply rose to 0.9 months — still low but a level not seen since early 2021 when the market was still adjusting from COVID-19. 

Purpose-built rental supply also increased during the final months of the year as quarterly completions reached a 30-year high of 1,863 units and the vacancy rate moved up to a nine-quarter high of 2.5% in Q4-2023, rising from 1.5% in Q4-2022.

Rental Construction Rises in Q4 Following GST Removal

Following recent announcements by the federal and provincial governments that HST would be removed from new rental housing construction, purpose-built rental construction starts rose to a 10-quarter high of 2,147 units in Q4-2023. This brought total GTA rental construction starts to 5,085 units in 2023, up 132% from 2022 (2,189 units) and representing the third highest level of rental starts of the past 10 years. Compared to two years ago in Q4-2021, the total number of rentals under construction in the GTA as of Q4-2023 declined 4% to 18,255 units.

“The recent moderation in the rental market is likely a temporary response to overheated conditions that emerged in the past two years. The fundamentals still indicate an undersupplied market will remain. While the recent increase in rental construction is a positive sign, much more progress will be needed before we will see long-lasting supply benefits.”

     - Shaun Hildebrand, President of Urbanation