By Erika Siegert, Senior Analyst, National research insights | 10 Décembre 2020

This is an excerpt from ‘The Altus Report’, as published in Informa’s Canadian Real Estate Forum Magazine – Winter 2020 and includes insights related to new residential development in the Vancouver and Toronto market areas.

 

 

The COVID-19 pandemic has disrupted all sectors on a global scale but has posed especially unprecedented challenges among Canada’s larger metropolitan areas. Most offices have now remained empty for nearly ten months as initial restrictions were put in place in mid-March, leaving some adjacent retail and restaurant businesses among city centres struggling to survive. While the industrial real estate market has fared well due to growing e-commerce sales, space shortage challenges have increased the need for industrial developments in proximity to city centres in order to sustain rising demand.

In the multi-family market, rental units in urban areas have seen a surge in supply as consumers have now modified their space and location preferences due to pandemic-induced lifestyle changes. However, new home sales are still growing, indicating some recovery in both Toronto and Vancouver markets. While it is still early in the second wave to see its ultimate impact, transactions continue to move forward for now, in alignment with changing market dynamics.

 

Rising supply in urban rental markets

While the residential market experienced a pause in what is typically the most active season of the year this past spring, overall transactions improved as restrictions lifted, but the priorities of both renters and homebuyers have shifted along with lifestyle changes brought on by the pandemic. This has ultimately created a new dynamic among multi-family markets especially in urban areas. Both Toronto and Vancouver have seen a shift in multi-family rental markets resulting from pandemic-induced changes. Border closures have caused national immigration levels to drop 41% in the first seven months of 2020 compared to the same time last year, with Ontario immigration decreasing by 43%, and British Columbia by 33%, according to Immigration Canada. This, paired with the transition to online-learning for post-secondary education leading to the loss of international students returning to rental units, has contributed to soaring supply levels in both markets. Rising supply has also been impacted by plummeting demand for short-term or vacation rentals as a result of pandemic restrictions limiting business travel and tourism, causing their subsequent conversion into long-term rental units further contributing to growing supply in the Toronto and Vancouver markets. Whether or not absorption will catch up remains to be seen, but prolonged border closures, travel regulations and remote work will likely continue pushing these trends forward.

This growing supply has caused rental rates to drop in both markets. In the third quarter of this year, the Toronto Real Estate Board reported an increase in rental listings by 114% compared to the same time last year and reported a year-over-year dip in one-bedroom rental rates by 11%. Similarly, the Padmapper October 2020 Canadian Rent Report outlined a year-over-year drop in one-bedroom rental rates by almost 8% in Vancouver. One-bedroom and studio rental rates are also reported to be dropping more than that of two- or three-bedroom units, reflecting continued preference for more space, especially to accommodate home offices. Still, the two cities remain the most expensive to rent in compared to other Canadian markets. This prolonged trend has led some to extreme measures, with some landlords offering incentives for renters to sign leases. These have included offering multiple months of reduced or free rent, gift-cards, move-in bonus credits or waiving parking fees. Although some renters have considered taking advantage of these perks, surging supply could persist as long as restrictions remain in place.

Greater Toronto Area  |  New home sales by type (YTD Q3 2019 vs YTD Q3 2020)

GTA new home sales YTD Q3 2020

Vancouver market area | New Home sales by type (YTD Q3 2010 vs YTD Q3 2020)

Vancouver new home sales by type, YTD Q3 2019 vs YTD Q3 2020

Since stay-at-home measures delayed spring sales in the new home market, pent up demand shifted forward into the summer months, with some areas reporting a notable increase in sales compared to previous years. While changing buyer priorities point to a preference for more space, new condominium sales have seen some signs of recovery in the Toronto market, with Toronto condominium sales jumping 35% in Q3 2020 compared to the same quarter last year, according to the Altus Group Condominium Apartment Monitor.

The Vancouver market has also seen some signs of recovery, with condominium sales improving from the second quarter, but still dropping year-over-year. At the same time, heightened demand has been seen in the single-family market, with Toronto single-family sales more than doubling, and Vancouver single-family sales growing more than three times in Q3 2020 compared to the same period last year. This growing momentum has continued into the fall, reflecting more owner-user transactions rather than investor-driven transactions, a trend also resulting from ongoing pandemic restrictions.

 

Will rental demand return to pre-pandemic levels?

Changes brought about by the pandemic will inevitably continue to impact the market in the foreseeable future, leaving cities scrambling to adjust. The evolution of where and how employees work has been seen now more than ever, with many signs pointing to future working models that prioritize flexibility and employee preferences, with remote work at least part of the time. While this is likely to impact office footprints for many large companies, landlords and tenants are already considering return to work strategies on top of office re-structuring plans to accommodate changes to safety requirements. The result of these strategies will ultimately impact where people live, work and play, specifically in metropolitan areas where retail, entertainment, and restaurant businesses, as well as the residential market, will fall in line. Looking ahead, as many wonder if reduced rental demand in both Toronto and Vancouver markets will recover to pre-pandemic levels, many speculate that existing trends and challenges will endure as long as restrictions remain in place.

 

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