National Post -Slump in condo rental market likely short term
September 28, 2024
Slump in condo rental market likely short term
Flood of units expected: CityPlace could have as many as 1,300 suites ready this year
Grace Macaluso
National Post
Investors expecting to capitalize on Toronto’s condominium rental market may have to keep their for-rent signs up longer.
Demand for rental condos is cooling as more tenants opt for home ownership and the supply of units increases, analysts say.
“Since late September, 2001, the market for residential rentals has turned much softer, with rates for both furnished and unfurnished condos moving lower and taking much longer to lease out,” says Gerry DiLeo, vice-president of the Rental Lifestyle Group, a Toronto-based leasing and property management company.
“The classified ad sections for residential rentals in major newspapers have grown considerably and it’s taking much longer to find a qualified renter in the current market,” he says.
Ted Tsiakopoulos, analyst at Canada Mortgage and Housing Corp. (CMHC), says the softer market will last about two years. The vacancy rate is expected to rise to 1.1% this year, compared with 0.9% in 2001. “It is more of a renter’s market. The big rent increases are behind us.”
According to CMHC, average rent for condo units is $2.25 to $2.50 a square foot, depending on location. Mr. Tsiakopoulos estimates the rental component of Toronto’s condo market is up 30% from 22% last year.
Mr. DiLeo says reasons for the slowdown include economic uncertainty and the lowest mortgage rates in 40 years. “The latter is prompting a segment of tenants to enter the ownership arena, in some cases at a carrying cost not much higher than the rent they had been paying,” he adds.
In the next few years, as more condo buildings become ready for occupancy, there will be a slight but continued increase in the overall rental supply in Toronto. Mr. DiLeo cites statistics from Urbanation, a housing-market publication, noting 21,000 new condos will be completed by 2003.
“New condo investors hoping to maximize rents for their suites may be in for a challenging time in the short term in certain areas of the greater Toronto area that have a number of projects moving from the construction to the occupancy stage,” he says.
In particular, the area between the theatre district and Harbourfront is expected to become very competitive, Mr. DiLeo says. Expect a “flood of condo rental suites” coming out of the CityPlace development, which adjoins SkyDome lands. It will have about 1,300 units available for occupancy by the end of this year. CityPlace is one of the city’s largest complexes, with 7,500 suites in 20 towers when complete.
Marc Cohen, vice-president of sales and marketing at Concord Adex, says investors make up about one-third of CityPlace buyers. And, “to give them peace of mind,” the developer is offering a unique service designed to facilitate leasing and management of rental units, he says.
Prompton Real Estate Service Inc., a property management company, is setting up an office at CityPlace. It will offer services in renting and advertising of units, providing market analysis, screening prospective tenants and rent collection. “It’s fundamentally for non-resident buyers and people who aren’t ready to move in yet,” Mr. Cohen says.
Mr. DiLeo applauds the CityPlace initiative: “I see them as a very progressive developer. They don’t have their heads in the sand and realize a lot of people are buying as investors.”
Despite rising competition, analysts say condominiums will remain a solid long-term investment. “With the projected increases in our local population, the demand for quality condo rentals will continue,” Mr. DiLeo says. “Non-condo rental construction, while increasing, is still not sufficient to keep up with future demand.”
HOW TO BE A SUCCESSFUL LANDLORD:
If you are considering buying a condo for rental purposes, here are some tips provided by Gerry DiLeo, vice-president of Rental Lifestyle Group.
– Objectives will include maximizing revenues while protecting your investment. To succeed in renting the unit quickly, you must know your target as well as your competition. Do not be greedy — you often have only one chance to talk price. If your rental rate is higher than comparable units, you will lose the prospective tenant.
– Consider attaching a Web address where photos of the condo and its views are available. This saves time for both the renter and the condo owner or manager.
– It is imperative to have a comprehensive lease document in place that reflects the obligations you, the owner, have to the condominium corporation. Tenant screening and selection, proper insurance, timely revenue collection, guideline rent increases and operating expense payments are some of the caretaking elements of leasing involved.
Revenue and value enhancement techniques, such as providing furnished suites to the market, can also be considered. A cost/benefit analysis, which will include researching competition and absorption in the geographic area, should be done before making any additional investment.
– Before renting out your condo, you should be fully aware of the contents of the declaration, by-laws and rules that govern the building you have an interest in. These documents contain provisions that may place restrictions or standards with respect to the occupancy or use of units, including renting to a third party, and how and when you can do so.
– A professional leasing and management company will deal with answering and returning calls from prospective renters, setting up showings and following up to close the lease deal. It also will help to ensure your investment is properly leased and well maintained, thereby protecting the value of your asset.