The wait is over! View the November 2023 Rentsync National Rental Demand Report.
The second month of 2023 showed us that demand growth was all but temporary. The sharp uptick in listing volume and unique prospects of January was completely reversed in February. Property counts were uneven across the country with primary and tertiary markets both showing declining availability throughout February Unique prospects have similarly taken a hit and are down clear across the country suggesting that many prospects end their rental searches without having found a rental property.
Secondary markets were the only segment to show growth in property counts however this left them more susceptible to declining renter interest. With average prospects per property down -18% month-over-month; the highest in the country.
This doesn't spell doom and gloom for the industry however, looking at data from the previous 3 years shows that February typically sees a decline in overall demand. This declining demand typically rebounds the following month in March as the weather improves, the number of days in the month expands, and residents become increasingly more willing to venture out to look for a new home.
Regardless of longer-term trends, February saw a -8% decline in unique prospects, a stagnation of property availability, and an overall decline in demand scores. Suggesting that the market is gradually becoming more competitive for rental properties as renters decline at an accelerated rate.
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.
February saw the greatest movement in market demand rankings of the previous 12 months; with a reshuffling of the top 5 markets. Total lead counts have declined across the country in line with annual trends. Unexpectedly property counts also declined across much of the country suggesting that while some people remain in the market for a new unit, many more are simply choosing to remain in place, therefore, taking both themselves and their units out of circulation. Historically February represents the final month of declining rental demand before the gradual Spring boom suggesting that February’s decline is likely to be no more than a temporary inconvenience.
Month-over-month (M/M) National demand scores are down by -8.1% in February 2023 compared with January 2023. Once again although this decline is substantial following a month of strong growth, it is expected based on longer-term trends in rental demand.
Year-over-year (Y/Y): National demand scores are down -30.6% in February 2023 compared with February 2022. Demand scores continue to trend downwards annually for the fourth month in a row. Primarily due to the strong growth trajectory experienced at the end of 2021 leading into the strong maintained leasing period throughout 2022. Demand scores don't paint the full picture however as unique prospects per property are up +12.4% year-over-year which puts properties in a much better position to attract high-quality tenants than last year. The greater imbalance between properties and available tenants looking for housing results in a greater share of leads per property. Overall, while market conditions are certainly cooling, properties remain in a strong position when leasing available units.
The top 10 markets typically see more exaggerated effects than seen on the national level. Although in part due to a large number of secondary markets in this list, these outsized monthly trends suggest that these markets are simply more responsive to monthly trends. Demand scores on average declined by -9.2% month-over-month, unique prospects are down by -10.4%, and properties are down by -1.4%. Average rents continue to trend up slowly at +1.4% month-over-month for one-bedroom units however this is not likely representative of actual rent growth, instead tied to a survivorship bias. With renter demand waning, those who are left looking for new homes are favouring more moderately priced units and leaving more premium units unleashed which has the effect of increasing the average rent of available units.
Rents show signs of maintained albeit slow growth this is likely a result of a shift in longer-term trends with many renters showing signs of price exhaustion and choosing to remain in place as opposed to renting a new unit.
Year-over-year the top 10 markets experienced a decline of -30.1% in demand scores. While demand scores are down, market fundamentals remain strong with average prospects per property up +13.3% year-over-year due to the opposite trends experienced by prospects growing by +5.7%, and properties declining by -6.7%. Property counts have declined so greatly due to the strong leasing trajectory experienced throughout 2022 which enabled a vast majority of available units to be leased resulting in record low vacancy rates in major markets.
The composition of the top 10 markets has also drastically changed, whereas last year's list was compromised of a mix of Ontario, and British Columbia communities. This year the list while being more Ontario focused also includes a more varied cross-section of Canadian cities.
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 -5.5% month-over-month, unique prospects are down -5.8%, and properties are down -0.3%
Primary markets showed the strongest staying power of all market segments in February with the lowest relative decline in renter counts and overall demand scores. The composition of primary markets experience no change in February except for Mississauga and Vancouver which switched spots. Vancouver showed a substantial decline in renter demand this month with a -26% decline in demand scores,
The order of markets has been relatively maintained with the strongest markets being those in proximity to larger more expensive communities. Offering residents proximate access to employment and leisure, while also offering a slight discount on the cost of living continues to appeal to many renters looking for new rental housing. Calgary will be an important market to watch for over the next year as Alberta continues to show strong population growth, and many young professionals are attracted by the promise of affordable housing and the potential for future growth.
*Year-over-year demand scores are down -20.6%, prospects are down -0.2%, and properties down -22.5%
For the first time in recent memory primary markets are showing an annual decline in prospect counts suggesting that the growth attributed to returning renters has finally ended, and the market is likely to continue showing signs of cooling into the foreseeable future. February 2022 was a period of strong leasing activity with much of the country slowly exiting covid restrictions and re-opening to conventional life. This strong leasing activity persisted and resulted in this steep decline in available properties year over year. Although vacancy rates are at an all-time low, and renter counts have begun declining, primary markets remain in a better competitive position relative to early 2022 due to the higher relative number of available prospects per available property +28.7% year over year.
Unfortunately with a return to tighter market conditions, annual comparisons are becoming less valuable as communities return to an almost frozen state with limited availability, and a fluctuation albeit maintained demand for rental apartments.
*Secondary markets demand scores are down -17.9% month-over-month, unique prospects are down -13.8%, and properties are up +5.1%.
Secondary markets were the only market segment to show growth in property counts in February, with the rest of the country showing a decline in property availability. While last month they showed a more muted return after the holiday season slowdown, this month they show strong maintaining power suggesting that they may be more immune from potential negative fluctuations in demand trends than the broader country, certainly more expensive primary markets.
Rent growth for secondary markets has also increased relative to January with a monthly change of +0.8%. While some of this may be due to actualized rent growth, much of this is likely due to the focus by many renters on more moderately priced units, which leaves more premium units available for longer thus impacting average rent figures.
*Overall, year-over-year demand scores are down -48.9% year-over-year, with prospects down by -25.8%, and properties down by -10.3%.
Demand was further slowed in February after January’s blip in demand growth. The annual comparison of secondary markets does not provide sufficient explanation for long-term trends in demand as by this point in 2022 secondary markets had long since experienced peak demand and were in the process of stabilizing. Although primary markets began to take a growing share of the market, secondary markets maintained substantial interest with many renters due to their greater level of amenitization, and proximity to employment centres. In the subsequent year, many renters migrated to larger urban centres which resulted in a significant loss of unique prospects.
Although a considerable number of renters have left secondary markets, they remain a serious contender for many renter households looking for access to major markets, while also reducing their cost of living.
*Demand scores in tertiary markets declined by -11.9% month-over-month, unique prospects decreased by -15.3%, and available properties decreased by -3.9%.
Tertiary markets performed roughly in line with if not a little worse than the national average. Rental rates were once again in line with the national average and increased by +0.4% month-over-month. Tertiary markets have long fallen out of favour for many renters so although January showed growth, February’s return to declining renter demand is more representative of where this segment is likely to continue.
*Overall, year-over-year demand scores are down by -48.2%, unique prospects are down by -25.3%, and available properties are down by -11%.
Much of the interest in tertiary markets was gone before February 2022, leading to a year of continued decline in overall demand scores with each subsequent month experiencing a more pronounced decline in demand scores.
Regardless of the general trajectory of tertiary markets, they maintain strong fundamentals with average prospects per property down -16.1% which is lower than the annual decline experienced by secondary markets. This suggests that although conditions are tighter than they were at the tail end of the pandemic; the strong leasing activity they experienced throughout the past 12 months enabled them to lower vacancies and sufficiently reduce availability to account for the loss in demand.
February showed us that growth is not always permanent and that sometimes a sudden reversal of trends, is as temporary as it is fleeting. Demand scores clear across the country declined. Following January’s sudden surge in rental demand, February showed strong declines in overall rental demand along with property counts. This is not a sign of concern however as the previous 3 years of data suggest that the seasonal decline in renter demand extends through February, with March representing the first month of renewed renter interest.
Larger primary markets were the least affected by this decline in demand with renter counts declining by -5.8%; substantially lower than the national decline of -8%. Even when the market as a whole slows down, renters continue to be preferentially attracted to larger urban centres. Whether it's the result of additional renters leaving secondary and tertiary markets, or new individuals entering the rental market. Large urban centres will continue to dominate Canada’s rental market.
Although too early to tell whether demand will continue to decline, or whether it will truly rebound in March as past years suggest; rental property owners and managers across the country can be confident that they will continue to see strong leasing due to the basic imbalance between the available supply of rentals, and the demand posed by a growing population of renters across the country. Even with slowed leasing activity, the market will continue to tighten with fewer units remaining on market, and a greater number of renters competing for a shrinking supply of quality and affordable units. This tightening will have the effect of propping up average rents throughout the year and allowing market fundamentals to remain strong.
Irrespective of specific rental market trends and overall demand, property owners must prioritize their leasing practices and funnels to ensure they attract top-notch leads and fill vacancies. The best approach to minimize rent delinquency is to prevent it from happening by attracting a greater number of high-quality leads.
To maximize incoming leads and fill available vacancies, consider booking a strategy call with Rentsync to ensure your leasing and marketing initiatives are positioned correctly.
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 Etobicoke, ON received a demand score of 5.8 this month, versus 5.5 last month. Meaning Etobicoke experienced a +0.3 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 Etobicoke, ON went up +6% in February 2023 versus January 2023, increasing 1 position within our rankings as the highest-achieving market in February. The year-over-year demand score in Etobicoke increased by 1.1 points representing a +24% increase from February 2022.
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, Etobicoke, ON achieved the top spot on our Top 40 Canadian cities in Demand rankings and went up 11 spots from its position last year.
*This report provides month-over-month rental listing data for February 2023 versus January 2023, as well as a year-over-year comparison from February 2023 versus February 2022. It also outlines the month-over-month and year-over-year trends in primary, secondary, and tertiary markets.
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