Last year was a lot of things… not least a time of increased conversations surrounding Toronto’s condo market.
The sector, hardest hit in local real estate by COVID-19 and its related impacts, was consistently making headlines in both its resale and rental spheres.
From low lows (average rent prices) to high highs (market growth), what the year shaped up to be nobody could have called back in January. And even now, though 2020 has been left in the dust by the new year’s rolling in, the mystifying moments play on.
“Never thought I would see this,” Realosophy Realty President John Pasalis wrote on Twitter. His words are paired with a graph, which shows average rent prices in “Central Toronto” (old City of Toronto) stacked up against the same data for Toronto (in general), and the Greater Toronto Area.
The visual shows that right now, downtown rents are priced lower than those across the city at large, as well as across the GTA. The core’s average rent price is $2,132, under Toronto as a whole at $2,152 and the GTA’s current $2,227 average.
Never thought I would see this.
— John Pasalis (@JohnPasalis) January 9, 2021
While there was a time when it would have been wacky to suggest a downtown unit could be less covetable than one on the city’s outskirts, the situation makes perfect sense 10 months into a pandemic.
Butler noted that while a 500-square-foot condo may have been “fine” for someone who was sleeping and showering in that space, but otherwise spending their entire day at work, restaurants, bars, or gyms, this couldn’t be the case through COVID-19.
And this is a story that began to play out as early as April, when insiders made predictions as to how the condo market would look post-pandemic. Citing job losses, reduced income, and shrinking immigration, Shaun Hildebrand — head of development-tracking market research firm Urbanation — said in the spring that “the slowing in the GTA rental market that appeared in the last half of March [would] progress for at least the next few quarters given the current economic outlook.”
Reasons posed, at that time, were less about personal preference (read: no desire to live in a shoebox when the downtown core has been put on pause), and more about pure necessity. But where the present-day conversation about average rent prices is concerned, the shoebox-desire (or lack-there-of) is an integral piece.
In fact, it’s consideration of a space’s size that can provide context and clarity surrounding jarring data such as the numbers shared above.
[Downtown rents dropping below the GTA average] is certainly an interesting observation, but it is always important to control for the unit size,” explains Ben Myers, president of Bullpen Research & Consulting. “Rent per-square-foot is a much more valuable measure.”
As the above data from rentals.ca shows, while the average rental price of a downtown unit may fall under that of the surrounding region, the price-per-square-foot does not. Averages dropped across the board year-over-year, but in December, downtown Toronto’s average rent-price-per-square-foot registered $3.16 — down from the $3.95 reported during the same month in 2019, but still hovering above the remaining City of Toronto’s $3.09.
The GTA’s equivalent price-point was $3.06, down from the prior December’s $3.45.
Where those year-over-year changes are concerned, downtown did see the most dramatic drop, with a $0.79 decline. Toronto in general followed, falling $0.48, while the GTA’s price decreased by $0.39. The same order is applied to declines that occurred through 2020: downtown saw a lowering of $0.76, followed by the rest of Toronto with $0.50, and the GTA with $0.42.
So, while downtown’s average rent dropping below those of the GTA may not be as shocking as it initially sounds, the general plummet rent prices have experienced this year can’t be discredited. An average 500-square-foot downtown unit, for example, saw its value drop from $1,960 /mo to $1,580 /mo.
There’s a lot (a lot) to be said for the $4,560 in annual savings that stem from that shift.
But despite steep declines in rents through the year, 2020 closed — and 2021 opened — with a stir in the condo sector. Following a slow-down in condo sales through April and May (a direct response to COVID reaching Toronto), summer and fall’s numbers were inconsistent, never demonstrating a year-over-year increase surpassing 9% and, some months, lowering as much as -13.6%. But, in December, the “nobody likes you when you’re a condo” narrative collapsed, as the month saw a year-over-year jump of more than 75%.
Pasalis, Butler, and Toronto realtor and chartered accountant Scott Ingram all agreed that investors were likely culprits behind the condo caper.
“Anytime you’re dealing with big swings in the condo market (e.g. rapid increase in new listings), my prime suspect is always ‘investors,’” Ingram said.
As for reasons why December was such a hot month? Pasalis speculated the sharp rise in action could have been due to low mortgage rates, while he and Butler both agreed the recent introduction of a COVID vaccine in Toronto should also be called a factor. Butler was particularly definitive in citing vaccines as the reason behind all the sudden action, saying that since March, nothing had impacted the downtown condo market more.
“As if by magic, deep concern over falling rents and likely falling values vanished,” he said. “The fact that there is now a definite timeline for the return to urban living means condo owners and condo investors can choose to wait until the market returns to normal.”
It seems, then, investors and end-users may be able to see some “normalcy” on the horizon. But for renters, that return may take a little longer.
“It will take a while for tenants to come back at the same demand levels as prior to the pandemic, and 2021 should see near record transactions, so these [above] figures could get closer in the coming months,” Myers said. His prediction lines up with a recent report from TorontoRentals.com and Bullpen Research & Consulting, which says rents are expected to decline in Toronto until mid-2021, and then slowly recover in late 2021 before rising “sharply” in 2022.
By that time, rent prices are expected to finish the year up 13% to 14% annually — an increase that, while sounding drastic, is still expected to land below the 2019 peak rent level of $2,454 per month.
Keeping all these coming changes in mind, renters should keep in mind: what comes down, must go up. And that’s looking to be true for Toronto’s average rent prices, at least.
As such, anyone hoping to “trade up” without breaking the bank should consider getting their ducks in a row, unless they want to miss out on a once-in-a-generation market softening.