The wait is over! View the November 2023 Rentsync National Rental Demand Report.
With the ongoing decline of renter demand across Canada, November marked the first month of supply-side growth as properties begin showing signs of stress. Three months of declining renter demand have begun to show cracks on the surface of many rental markets, with overall property availability increasing month-over-month by +1.6% nationally, while unique prospects continue to trend downwards -16% month-over-month.
Competition amongst properties has begun to and will continue for the foreseeable future to intensify as renters become more scarce, and properties more plentiful.
The decline in prospects is now over 10x higher than the change in property availability across the country resulting in unique prospects per property declining by -17.4% nationally month-over-month. There's no denying that this trend will continue after 3 straight months of rental decline leading into the winter period with no indication of slowing until as early as the summer leasing season of the following year, if not later. This will ultimately depend on consumer market confidence, with negative sentiments prolonging the pain and pushing more residents to remain in place.
Renters choosing to stay in place and forgoing rental decisions continue to increase and represent a growing number of those who are leaving the rental market. Whether they do so out of exhaustion from recent rent hikes which saw average rents spike above the pre-covid peak, economic uncertainty in regards to a potential future recession, the looming cold of the year's winter months, or a combination of the three.
The overall state of the rental market should lend comfort to potential renters looking for a cooling of rents, and concern for many property managers who can no longer afford to stay idle. Property owners and managers are going to have to be more proactive than ever to remain competitive and maintain high occupancy. Below we will identify notable changes in rental demand, highlight market-specific trends, and discuss what the coming months may look like for the rental demand in Canada.
Demand scores continue a downward trend with an average decrease of -17.4% month-over-month. Not due only to seasonality; November typically sees a decline in renter demand; however the decline experienced this year was unseasonably early, and more aggressive than in other years. Combined with the perceived economic downturn on the horizon many chose to forgo renting a new home which adds to this unseasonal decline in demand. November saw the return of Surrey as the top market and being one of the few communities in Canada to show positive demand growth at +6% monthly compared to an average of -18% monthly decline in demand as seen amongst the top 5 markets.
Month-over-month (M/M) National demand scores are down by -17.4% in November 2022 compared with October 2022. The number of prospective renters continues to decline while available properties have reversed trajectory and are increasing +1.6%, while unique prospects declined by -16.1% month-over-month.
Year-over-year (Y/Y): Nationally demand scores are down -8.8% in November 2022 compared with November 2021. Demand scores have tipped into the negatives when compared to the previous year. All of the increased demand picked up throughout the last year has been wiped clean and properties approach similar leasing conditions to those at the tail end of covid. Albeit almost half the number of available properties, and -13.5% fewer renters year-over-year.
The top 10 markets experienced a higher-than-average decline of -21% monthly in rental demand, with unique prospects down -17.6% and properties up 4.6% month-over-month. Average rental rates continue to trend upwards within available listings up +1.8% monthly for one-bedroom units. This is however not reflective of actual market rents and instead a result of survivorship bias wherein there is likely a preference amongst those continuing to rent new apartments towards more reasonably priced units. This in turn results in fewer moderately priced units remaining on the market, and a higher relative supply of more premium units. This imbalance in unit availability by price results in higher average values and growth in monthly rents.
With many households concerned about broader socio-economic instability those who choose to move may favour more moderately priced units that offer greater financial security and stability.
Year-over-year the top 10 markets experienced a decline of -37% in demand scores however this is due in part to the substantial change in the markets comprising the top 10 spots within our rankings. With an average change of 11 spots, a majority of the markets within the top 10 list were ranked substantially below their current spots and not reflective of the markets with the strongest relative demand in Canada.
One of the reasons these communities rank so highly is in part due to their strong fundamentals and limited movement as it relates to renter demand. For example, the yearly trends within these communities are vastly different from what is experienced anywhere else within our demand report. Unique prospects are up +6.4%, property availability is down -1.8%, and unique prospects per property are up 8.3% year-over-year. Almost as if the last three months have left these communities relatively unaffected they show strong annual growth and steady demand.
To better segment our data and analyze what is happening within specific markets across Canada, we have broken down the rest of our data into 3 key market segments:
Here we will gain a deeper perspective on demand across larger population centers and trends in various markets.
*Overall demand scores are down -16% month-over-month, unique prospects are down -16%, and properties are relatively stable up only +0.3%.
Primary markets no longer represent the communities with the greatest monthly declines, and although demand scores continue to decline at an accelerated rate, they are now over-encompassed by both secondary and tertiary markets which have strong declines in renter demand, and growth in property availability. Instead, primary markets show the strongest maintained demand fundamentals amongst Canadian markets with property counts remaining stable irrespective of the decreased number of renters in these markets.
Average rental rates continue to grow +2.5% for one-bedroom units however as discussed previously this is likely a result of survivorship bias amongst more expensive units which are less appealing to renters during a time of tightening budgets. This is likely exacerbated within primary markets due to the larger supply of luxury-oriented properties which target more affluent urban dwellers. This trend will be important to track over the next few months as supply begins to catch up with the lessened demand within these communities and average rents begin to better resemble actual market rents.
*Year-over-year demand scores are up +5%, prospects are down -6%, and properties down -47.9%
Primary markets have shown signs of a slowdown on an annual basis with a decline in prospects not previously experienced. Although we are beginning to trend downwards we remain in a much better position than that of 2021 with average prospects per property up +80% year-over-year. The strong resurgence of primary market interest as a result of a push for a return to in-office work, and community amenities created an influx of additional market demand. This demand continues to be felt by many primary markets
Primary markets have been experiencing a tightening of market conditions over the past 12 months. And although recently renter interest has declined we are in a substantially better position than that of November 2021. The combination of strong leasing over the past year, and growing renter demand resulted in a decline in overall property availability and substantially higher prospects per property suggesting that even with reduced demand scores; the market is not likely to see a repeat of the tepid leasing market of 2021.
Year-over-year comparisons over the next two quarters are likely to be less indicative of overall trends as we enter a period of cooling in 2022 while this period last year represented the headwinds of strong growth as pandemic restrictions gradually lifted and renters returned to primary markets.
*Secondary markets demand scores are down -22% month-over-month, with unique prospects down -14.9%, and properties are up +8.8%.
Secondary markets show the most surprising trends with properties increasing at almost half the rate at which prospects continue to decline. Potentially suggesting that these communities are experiencing a greater impact as property availability has increased well above that seen by either primary or tertiary markets. This has been the case through October as well and may be in part due to the surge in single-family rentals.
With many private property owners concerned about potential economic instability they are leaning towards renting unused homes to safeguard their real estate investments and maintain their mortgages to ensure their financial security. This influx of secondary market rentals has also impacted the primary market by drawing away many potential renters from the purpose-built rental properties they may have otherwise rented from.
This further fragments the market which may pose a challenge to the industry. It ultimately offers renters a greater variety of options and may also contribute to a lessening of the tight market conditions many Canadian markets are experiencing.
*Overall, year-over-year demand scores are down -21%, with prospects down by -25.6%, and properties down by -45.2%.
Demand scores, unlike last month's flat annualized growth, are now dropping at an accelerated rate across the board. Similarly, prospects per property are up +36% year-over-year however this rate is down from the +69.5% increase experienced last month. Although seasonality can be partially attributed to this gradually decreasing trend of secondary market demand, it is also likely the result of the shift in renter interest towards secondary market rentals which continue to grow in availability.
*Demand scores in tertiary markets decreased by -22%, unique prospects decreased by -19.2%, and available properties increased by +3.4%.
Tertiary markets were the first to show signs of slowing demand and continue to show a greater decline than larger markets. Just edging past secondary markets, tertiary markets showed the greatest monthly decline in average prospects per property of -21.9%, and although this represents an order of magnitude fewer prospects and properties, this decline is emblematic of changing priorities of many renters across the country. With many moving to larger urban markets offering more community amenities, and employment opportunities that may otherwise be unavailable in smaller communities.
*Overall, year-over-year demand scores are down by -39%, unique prospects are down by -23.5%, and property availability is down by -26.7%.
Throughout the pandemic, tertiary markets saw the greatest upswing in overall demand, much if not all of which has since been lost. November of last year saw a steady leasing trajectory. However, by this point, it would have been on the tail end of the growth experienced throughout the pandemic and represented a gradual slowdown in renter demand experienced in March 2022.
Regardless of the general trajectory of tertiary markets, they remain in a moderately better position than last year as properties have declined disproportionately relative to prospects leaving average prospects per property up +4.3% year-over-year. By now much of the interest experienced has been lost, and any improvements in competition due to limited supply are all but gone due to the diminishing number of prospects within these communities.
November much like August is either a blip in the radar, or a sign of what's to come; for the first time showing cracks from the gradually lessened demand of the previous 4 months. Renter demand has not come crashing through the stratosphere and has instead maintained its trajectory if not slightly further accelerated with a monthly decline of -17.4% in November compared to October's decline of -13% month-over-month. The cracks in the wall are represented by the increasing number of available properties clear across the country and all market sizes.
Showing a departure from last month's tepid movement in property counts, November shows an average increase of +1.6% in property availability across the top 40 markets, and +4.6% amongst the top 10 markets. This marks November as the first full month of supply-side growth.
This reversal in property availability is likely due to two major factors: reduced rental demand, and an increase in secondary market supply. The gradually diminishing number of prospective renters over the last 4 months has finally left an impact on the overall supply of properties as properties entering the market find it more difficult to lease and ultimately stay on market for longer thus adding to the overall supply of available rental properties.
The issue of growing secondary market rentals is a more complex one wherein many private investors are beginning to feel the stresses of a weakening sales market, and incrementally higher interest rates. Both factors lead those who would have otherwise preferred to sell their properties to now rely on the rental market to maintain the costs of their mortgages and property maintenance. This resulted in a significant rise in condominiums and more notably single-family rentals. further straining the primary rental market by drawing away renters who would otherwise rent in conventional rentals.
Now at a point where supply and demand move 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.
All in all property managers and leasing agents are the first line of defense to limit these outcomes. Ensuring that your leasing and marketing initiatives maximize incoming leads can help properties ensure they set themselves up for success during a time of uncertainty.
To present this data, Rentsync has determined three key calculations for each area of the report, they are as follows:
Demand Score: Our demand score is rated out of 10 (with 10 being the highest score a city can receive), and is calculated based on unique leads per property, per city, and compared against benchmark data.
For Example Surrey, BC received a demand score of 6.5 this month, versus 6.1 last month. Meaning Surrey experienced a +0.4 point increase in its demand score.
Demand Percentage (% +/-): This is determined according to the year-over-year (YOY) or month-over-month (MOM) increase or decrease in unique leads per property.
For Example The month-over-month demand scores in Surrey, BC went up +6% in November versus October 2022 while gaining 4 spots in our rankings as the highest achieving market in November. The year-over-year demand score in Surrey decreased -0.1 points representing a -1% decrease from November 2021.
Position: The position is determined by unique leads per property, with cities that have at least *20 properties or more. The position will vary depending on demand.
For Example This month, Surrey, BC moved up to achieve the top spot on our Top 40 Canadian cities in Demand rankings, up 2 spots from last year.
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