MARKET SNAPSHOT: Toronto Multifamily Remains Tight as Rents Rise and Concessions Fade
By Philip Shea, Associate Editor
While sales velocity has ticked down somewhat over the past year, prices for apartments in the city of Toronto remain extraordinarily high. The Toronto Real Estate Board (TREB) notes in their Q3 2012 market report that the average selling price for August 2012 transactions was $479,095—an almost 6.5 percent increase from the same time in 2011.
“Rental rates and concessions both seemed to have firmed up over the last couple of quarters,” says Henry Morton, president of Campus Suites—which own and operates a number of units in the Toronto metro area.
Morton adds: “Occupancy may or may not be up, as various owners [and] managers make economic decisions based upon their net numbers. Some managers feel that if you can get the generally higher rents, then occupancy should follow if they believe in the market and they push it to find the break point, which is a very good model.”
According to the TREB, 95 percent of rental transactions in the Toronto MSA during the third quarter consisted of one- and two-bedroom condominium apartments, and year-over-year rent increases for these unit types were 3.5 percent and two percent, respectively. While these are certainly significant figures, the research firm notes that such increases were not as strong as the previous year’s, and that a wave of new supply has lead to less upward pressure on rents.
Condo vacancies, however, remain incredibly low—with the central Toronto market posting an overall 1.3 percent rate and surrounding suburbs like Halton and Peel falling as low as 0.3 percent.
Notes Morton: “All markets are reasonably good until they are not, and one of the greatest fears is that there are several markets that sound good, but they sound good to everyone and, as a result, they often see a rapid influx of product that puts others at risk.”
A situation that may complicate the rental market is the fact that unemployment in Canada’s largest city remained at 8.5 percent in Q3 2012, which is higher than the national rate of 7.4 percent. Still, the TREB reports that overall growth in employment rose 2.3 percent between the third quarters of 2011 and 2012, and that GDP growth in the second quarter of this year was 1.8 percent.
In terms of product that represents the greatest potential, Morton has faith in his company’s decision to take up a bid for a student housing project at York University in Toronto, which has a student population of approximately 55,000. As this is a demographic and product class that is somewhat independent from factors like employment—both in Canada and the United States—the potential for a sizeable return is clear.
“York is one of the largest schools in the country and initiated an RFP process a few years ago,” says Morton. “We were picked as the preferred proponent. It is a project that can have up to 2,200 beds and will be transformative for the future of the school. Combine this development with the Pam American games, the new Engineering school, the new subway [and] the growth of the business school and you have a once in a lifetime opportunity up there to make something special.”