The wait is over! View the September 2023 Rentsync National Rental Demand Report.
October saw the continued decline of renter demand across much of Canada and thankfully not the full-on spiral some saw possible as we enter a colder and much slower period. More of an extension of the trends first experienced in September, overall rental demand has continued to lessen, and competition amongst properties begins to tighten for a shrinking renter pool.
Prospects declined at a rate of over 5.5x faster than properties across the country resulting in average prospects per property declining by -12.9%. This continued decline over 2 months suggests that this trend is likely to persist with overall demand trending downwards entering the winter months and that we are unlikely to continue seeing the tightened market conditions experienced throughout the summer leasing period until as early as 2023 if not later. This will ultimately depend on consumer market confidence with negative sentiments likely pushing more to remain in place.
Renters are deciding to forgo rental housing decisions likely for several reasons including exhaustion from recent rent hikes which saw average rents spike above the pre-covid peak, and economic uncertainty in regards to a potential future recession. This is further exacerbated by the seasonality of rental demand with renters preferring to make housing decisions during the warmer summer months.
The period of hassle-free apartment leasing is over as demand softens and we enter the winter lull. 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 to trend downwards across Canada with an average decrease of -12.9% month-over-month. Partially due to seasonality; October typically sees a substantial decline in rental demand. When viewed through the lens of current events and the perceived economic instability on the horizon many choose to forgo renting a new unit which further adds to the decline in demand. Etobicoke has taken over the top spot in our rankings; not because it has experienced growth in demand, but because unique prospects declined at a lesser rate of -15.1% compared to the average of -16.6% decline experienced across the top 5 markets.
Month-over-month (M/M) National demand scores are down by -12.9% in October 2022 compared with September 2022. The number of prospective renters continues to decline at a greater rate than property availability, resulting in declining demand scores. On average prospects declined by -15.3%, while properties declined by -2.8% resulting in a decline of prospects per property of -12.9% month-over-month.
Year-over-year (Y/Y): Nationally demand scores are up +6.5% in October 2022 compared with October 2021. While nationally demand scores are up, this is primarily due to the uplift experienced by primary markets in 2021 Q3 when many of the renters who chose to move to smaller communities during the pandemic, began shifting their focus back to primary markets and marked the resurgence of urban living.
Although renter demand has taken a hit recently, when compared to last year demand remains up substantially with prospects per property +82.8% higher year-over-year. This suggests that while demand may decrease we remain in a substantially better position than that experienced during the pandemic.
The top 10 markets are experiencing a decline in rental demand in line with the national average with unique prospects declining by -14.6%, and overall demand scores declining by -13.6%. The strong rental rates being demanded within many of these markets may be further driving away renters with properties declining by -1.2% monthly which represents a lower rate than the broader country at -2.8% suggesting that more renters are instead choosing to delay a housing decision by remaining in place thus taking fewer properties out of the market.
Rental rates continue to gradually slow down, and while our data indicates a month-over-month increase of approximately 3.4% this is likely not representative of the trajectory of market rents between September and October. Primarily due to survivorship bias some units which may represent the highest rents in a market and require a longer leasing period will remain within a dataset for a longer period thus artificially inflating average rents.
With many households concerned about broader socio-economic trends those who chose to move may be less likely to choose more pricey units in favor of those more moderately priced which may offer greater financial security and stability.
Year over year unique prospects saw an increase of +22.2%, alongside a decline in property availability of -49.1%. While recent trends show a decline in rental demand with waning prospects and stagnant property counts we remain in a substantially better position than that of the previous year. The influx of prospects can be attributed to a refocusing of renter interest from smaller tertiary markets to larger primary and secondary communities. Renters were increasingly drawn by the greater amenitization, and employment opportunities available.
The decline in properties is similarly attributed to this refocusing of rental interest which spurred on a strong period of leasing and allowed much if not all of the vacant rental stock in these communities to be released. This strong leasing trajectory has since passed meaning that future leasing activity will unfortunately not be as easy as it may have been during the past 12 months, it will remain substantially changed from last year.
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 -12% month-over-month, unique prospects are down -15%, and properties are down -3.5%.
Primary markets continue to feel a greater rental demand decline with each month. With property counts declining at a lesser rate each passing month, we can safely assume that each month a greater number of the renters exiting the rental market are doing so not because they have concluded their rental search but have instead decided to forgo new housing decisions and remain in place. That said the relative decline of prospects vs properties is the lowest amongst primary markets with prospects declining at a rate of 4.3x faster than properties which is lower than both secondary and tertiary markets.
Average rental rates continue to grow at a lesser rate month-over-month with an average increase of 1.2% from September to October 2022. While part of this rental increase may be due to actual market rate increases a large portion is likely attributed to the bias imposed by premium units remaining vacant and thus artificially inflating average market rents simply because those who are choosing to move may have a preference for more conventionally priced units over those considered more luxury-oriented and achieving the top of market rents.
*Year-over-year demand scores are up +19%, prospects are up +5.4%, and properties down -48.5%
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 October 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 three months are likely less indicative of overall trends as we enter a period of cooling in 2022. 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 -13% month-over-month, with unique prospects down -15.2%, and properties are down -2%.
Secondary markets saw the highest monthly decline in renter demand; with renters declining approximately 7.4x the rate of property availability suggesting that these communities contain the highest number of individuals choosing to forgo new rental commitments. Secondary markets represent a substantial supply of secondary market informal rentals.
With many private property owners concerned about potential economic instability they are leaning towards renting unused spaces to safeguard their mortgages against future hikes and 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 those in the leasing 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 -1%, with prospects down by -13.8%, and properties down by -49.2%.
Demand scores are relatively flat year-over-year however this does not paint a full picture with some markets experiencing a substantial decrease in overall demand scores, while others are up year-over-year. No single factor can be attributed to the variability experienced by secondary markets however, the markets which experienced the greatest declines in demand scores were those with the greatest loss in unique prospects
The explosive growth experienced throughout 2022 allowed vacant units to be absorbed and market conditions to return to their pre-covid tightening. With a 49% year-over-year reduction in the number of available properties, finding a unit is now harder than ever before.
*Demand scores in tertiary markets decreased by -13%, unique prospects decreased by -11.6%, and available properties increased by +1.9%.
Tertiary markets were the first to experience a slow-down in renter interest with the first indications as early as March. Since then unique prospects have gradually declined and property availability has gradually increased.
This suggests that while the rest of the country enters a cooling period, tertiary markets are likely to experience a more pronounced decrease in demand with many households choosing to either remain in place or move to markets with greater employment opportunities. Typically the first to experience instability in demand are top-of-market properties, which when located in tertiary markets typically target an older resident profile. These individuals are often risk-averse and may lead to tertiary markets experiencing a longer-term decline in overall demand. Otherwise, properties which target more conventional renters are likely to remain in relatively strong standing albeit with reduced turnover.
*Overall, year-over-year demand scores are down by -25%, unique prospects are down by -13.4%, and property availability is down by -33%.
Throughout the pandemic, tertiary markets saw the greatest upswing in overall demand, much if not all of which has since been lost. October of last year saw an influx of additional properties in tertiary markets, all of which have subsequently been leased up and absorbed into the market.
Regardless of the general trajectory of tertiary markets, they remain in a substantially better position than last year as properties have declined disproportionately relative to prospects leaving average prospects per property up +29.2% year-over-year. This suggests that although many may have shifted interest to markets with expanded amenities, and greater levels of social connection, tertiary communities remain strong leading into the winter months.
October took us one step closer to the winter lull in leasing we've been speaking of for the last 3 months. Barring any extreme events occurring we are unlikely to see rental demand or rental rates plummet dramatically and we are instead likely to continue seeing a gradual monthly decline in renter demand until a point where some properties, likely achieving top-of-market rents begin adjusting their rental rates to better compete for the shrinking market of potential renters.
This is however unlikely to occur until Q1 2023 as most properties maintain sufficient incoming leads to accommodate whatever turnover they experience. This is not to say that all properties are immune with many already reporting a substantial decline in overall lead volume and a complete lack of non-local leads. These properties represent the highest rents within their respective markets; with the markets in question representing those that have the least competitive rental environments.
This may very well be the long-term impact we can expect to see in Canada with renters increasingly flocking towards more moderately priced properties and choosing to remain in place as opposed to making moves, whether to a new property or new community they will instead remain in place.
With fewer willing to make the commitment to move, and those who do so choosing to focus on more affordable accommodations, property owners and managers are going to have to reconsider how they market their units and attract tenants. Setting yourself apart from the competition and conveying value can ensure that you're not hurting your bottom line by playing the zero-sum game that is rent concessions.
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 6.9 this month, versus 7.9 last month. Meaning Etobicoke experienced a -3.0 point decline 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 down -13% in October versus September 2022 while maintaining its spot as the highest achieving market in October. In October 2022, the year-over-year Demand Score in Halifax went up 3.2 points representing an increase of 84% from October 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, Etobicoke, ON moved up to achieve the top spot on our Top 30 Canadian cities in Demand rankings, up 16 spots from last year.
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