March 2, 2023

Tightening of Rental Demand Likely in 2023

Closing out 2022, the Canadian rental industry has experienced extremes of demand, run-away rental growth, and the subsequent reversal of trends, according to a national report by Rentsync.

The report said rental rates in December showed signs of slowing down after four consecutive months of decreasing demand.

According to the Rentsync National Retail Demand Report: January Demand Report, the Top 10 Canadian Cities in Demand are:

    1. Surrey, British Columbia
    2. Halifax, Nova Scotia
    3. North York, Ontario
    4. Brampton, Ontario
    5. Etobicoke, Ontario
    6. East York, Ontario
    7. Waterloo, Ontario
    8. Calgary, Alberta
    9. Scarborough, Ontario; and
    10. Vancouver, British Columbia.

“Unique prospects maintain a downward trajectory of -9.1% nationally month-over-month, properties have slipped back into the negative; declining by -5.5%, and demand scores declined by -3.9%. These indicators do not suggest any major shifts in market sentiment, nor do they suggest that the ongoing trend of declining demand has finally culminated in the stagnation of overall market principles. Although overall property availability has dipped back into the negative it is likely a result of seasonality,” said the report.

“With renters making fewer housing changes during the holiday season, the supply side seemingly followed the same pattern with fewer properties being made available, thus decreasing the overall supply of available properties. This housing apathy resulted in the stagnation of rental rates for the first time in 2022 with a monthly one-bedroom change in rents of -0.24%. Although a marginal decline marks a turning point in rents after a year with annual growth of over +13.5% for one-bedroom units.”

The report said the market will likely see a continued tightening of renter demand in 2023 and the intensification of competition amongst properties with fewer renters looking to move, and more properties becoming available. This tepid demand and growing supply will likely have the effect of slowing rents.

“A complete reversal is however unlikely as many of the major markets across Canada are severely undersupplied while also showing low vacancies,” added the report.

“December moved away from the trends seen recently and marked what is effectively a blip on the radar with seasonality having an outright impact on overall supply and demand. Whether directly related to the drop-through seasonality; rents have similarly peaked and show an average decrease of approximately $7 across our top 40 markets. Major markets fared better than smaller communities through their resilience and limited supply, while smaller secondary and tertiary markets were more prone and experienced greater losses in average rents.”

The report said it’s too early to say whether rents will accelerate downwards, or whether they will stabilize; however, this will offer relief to many of those who have felt price exhaustion from the recent hikes in achievable rents seen throughout much of the country.

“If supply and demand return to their November trends, going in opposite directions the likely outcome will be dependent on how long this trend continues. If temporary, this will represent a softening of rents, and more variety for renters; if on the other hand, the trend persists this may have broader repercussions on price and supply as new developments choose to delay construction, and units re-entering the market experience significant price shock. Thus hurting the broader rental industry and likely negatively impacting the country’s housing supply,” it concluded.

“With the holiday season behind, us property owners and managers are going to have to carefully track their vacancies and ensure that they are well-positioned to weather the potential storm (that is) to come. Property counts are likely to continue increasing, while prospective renters dwindle. Leading to a tighter rental market, and more competition amongst available properties.”

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