Toronto Downtown Core Condos, Rental Drop, September and Beyond

deepzerg wrote: ↑TLDR: Rent is dropping in Toronto, if students don't return in September, we may be in for a bigger rental drop (and consequently drag condo prices down).


Here is a list of rental observations I've made in the Toronto Downtown Core, I randomly pick a few buildings I know, and then I look at the latest May 2020 leases on MLS w/ a rental history:

• 200 Bloor St W, C4715261, May 2020 $2280/mo, May 2019 $2500/mo, April 2017 $2000/mo
• 1080 Bay St, C4714533, May 2020 $2850/mo, June 2018 $2800/mo
• 12 York St, C4736915, May 2020 $3400/mo, May 2016 $3050/mo
• 55 Bremner Blvd, C4750326, May 2020 $2200/mo, May 2019, $2400/mo, Dec 2015 $1850/mo
• 21 Carlton St, C4727885, May 2020 $2000/mo, Oct 2017 $1950/mo
• 763 Bay St, C4746665, May 2020 $2200/mo, July 2018 $2550/mo

I don't claim this is an unbiased sample, and I encourage readers to collect/post more data, and this is a small sample size. However based on my interpretation of the data, rent is down close to 2017-2018 level. My observation is that studios/1bedrooms have kept more of their rent and closer to 2018 level, while larger units (2bedrooms) are closer to 2017 level. If we make the assumption that there should be strong relationship between market rent price and the market purchase price, condo prices in the Toronto DT core should be closer to 2017-2018 level, and wiping out the condo appreciation gains the last 2-3 yrs.

It's very interesting on what will happen in August/September.

Here is my thesis: many leases will expire in August (e.g., almost all student leases follow the school calendar), and a flood of units will appear on the market towards end of summer. It's very like UToronto/Ryerson/George Brown will be online-only (e.g., UBC/McGill/Montreal have all announced teaching will mostly be online), and this will be a huge shock to the rental market that we have not priced in yet (we've only had 2 months of COVID, and all these students are still under lease till end of summer). There is a probably an unknown % of renters who are not currently paying rent (and who cannot be evicted), these units have also not appeared on the market (until eviction rules are normalized). There is also an unknown % of renters who will simply move back to their parents house if COVID drags out longer or as soon as leases expire (e.g., a lot of Gen X/Y/Z move out to live downtown when they had a job in the core). There could be an additional 20-30% drop in rental prices, and a large drop in condo price (back to 2017 level) in DT Toronto if students don't return in the fall. Owners who bought early (e.g., 2016) will be able to weather the storm, but whoever bought late in the game (2017+) will most likely be cash-flow negative, and whoever is over-leveraged will be forced to sell. While credit is cheap (e.g., low A-lender interest rates), tightening of credit is also true (e.g., banks are more strict on lending, B-lender rates going up) which may limit investor demand, especially for cash-flow negative units.

deepzerg wrote: ↑ TLDR: Rent is dropping in Toronto, if students don't return in September, we may be in for a bigger rental drop (and consequently drag condo prices down).


Here is a list of rental observations I've made in the Toronto Downtown Core, I randomly pick a few buildings I know, and then I look at the latest May 2020 leases on MLS w/ a rental history:

• 200 Bloor St W, C4715261, May 2020 $2280/mo, May 2019 $2500/mo, April 2017 $2000/mo
• 1080 Bay St, C4714533, May 2020 $2850/mo, June 2018 $2800/mo
• 12 York St, C4736915, May 2020 $3400/mo, May 2016 $3050/mo
• 55 Bremner Blvd, C4750326, May 2020 $2200/mo, May 2019, $2400/mo, Dec 2015 $1850/mo
• 21 Carlton St, C4727885, May 2020 $2000/mo, Oct 2017 $1950/mo
• 763 Bay St, C4746665, May 2020 $2200/mo, July 2018 $2550/mo

I don't claim this is an unbiased sample, and I encourage readers to collect/post more data, and this is a small sample size. However based on my interpretation of the data, rent is down close to 2017-2018 level. My observation is that studios/1bedrooms have kept more of their rent and closer to 2018 level, while larger units (2bedrooms) are closer to 2017 level. If we make the assumption that there should be strong relationship between market rent price and the market purchase price, condo prices in the Toronto DT core should be closer to 2017-2018 level, and wiping out the condo appreciation gains the last 2-3 yrs.

It's very interesting on what will happen in August/September.

Here is my thesis: many leases will expire in August (e.g., almost all student leases follow the school calendar), and a flood of units will appear on the market towards end of summer. It's very like UToronto/Ryerson/George Brown will be online-only (e.g., UBC/McGill/Montreal have all announced teaching will mostly be online), and this will be a huge shock to the rental market that we have not priced in yet (we've only had 2 months of COVID, and all these students are still under lease till end of summer). There is a probably an unknown % of renters who are not currently paying rent (and who cannot be evicted), these units have also not appeared on the market (until eviction rules are normalized). There could be an additional 20-30% drop in rental prices, and a large drop in condo price (back to 2017 level) in DT Toronto if students don't return in the fall. Owners who bought early (e.g., 2016) will be able to weather the storm, but whoever bought late in the game (2017+) will most likely be cash-flow negative, and whoever is over-leveraged will be forced to sell. While credit is cheap (e.g., low A-lender interest rates), tightening of credit is also true (e.g., banks are more strict on lending, B-lender rates going up).

Newuserid wrote: ↑ Lower rents certainly puts pressure on condo prices; however, it doesnt necessarily mean that there will be noticeable drops on prices.

There are several big cities around that world with astronomical real estate prices that dont have high rents to support them, but prices are still high. Detached houses in Toronto are much cheaper to rent compared to buying them, but they are still expensive.

I personally think that Toronto condo prices will always remain at a level that is cash flow negative based on current market prices with 20% down.

VanByTheRiver wrote: ↑ I've been following rentals closely, and in downtown Toronto based on same-unit historical rentals we're at or below peak 2018 levels.

But condo prices? Still crushing 2019 price levels by a country mile.

-A 2br/2ba/1parking unit in Sackville sold yesterday for $790k, up 11% vs the same unit on the floor below last year (C4728810)
-A 1+1/2ba/0 parking unit on St. Joseph St. sold yesterday for $790k, up 7% from the same unit sold in Aug last year which was 13 floors higher than the one sold yesterday (C4754381). Add $2k per floor and we're at about an 11% change.

Can any real estate agents comment on what exactly is going on here? In the past I've been able to state that Toronto's robust economy and lava-hot rental market justified the rising prices......but right now? Lol. The fundamentals have completely disconnected from prices.

The only explanation that I can think of is that no one wants to sell unless they absolutely have to; and so far nobody has had to do that (so supply hasn't really adjusted) - whereas the rental market is likely much more reactive to economic conditions. But I think that's a weak explanation because the high prices imply that buyers are still willing and able to pay through the nose.

VanByTheRiver wrote: ↑ I've been following rentals closely, and in downtown Toronto based on same-unit historical rentals we're at or below peak 2018 levels.

But condo prices? Still crushing 2019 price levels by a country mile.

-A 2br/2ba/1parking unit in Sackville sold yesterday for $790k, up 11% vs the same unit on the floor below last year (C4728810)
-A 1+1/2ba/0 parking unit on St. Joseph St. sold yesterday for $790k, up 7% from the same unit sold in Aug last year which was 13 floors higher than the one sold yesterday (C4754381). Add $2k per floor and we're at about an 11% change.

Can any real estate agents comment on what exactly is going on here? In the past I've been able to state that Toronto's robust economy and lava-hot rental market justified the rising prices......but right now? Lol. The fundamentals have completely disconnected from prices.

The only explanation that I can think of is that no one wants to sell unless they absolutely have to; and so far nobody has had to do that (so supply hasn't really adjusted) - whereas the rental market is likely much more reactive to economic conditions. But I think that's a weak explanation because the high prices imply that buyers are still willing and able to pay through the nose.

oasis100 wrote: ↑ Rental rates have gone down, but it doesn't mean resale will go down. You cannot assume all resale purchases are for rental purposes.
it probably does not make sense right now to buy a resale for the purpose of renting out.
Also, just because lease rates have gone down, does not mean people are under water. I have a unit for lease right now in the downtown core, even if she took 200 less than ask price, its still clash flow pos by like 600. this is because they bought the unit like 6 years ago.

als98 wrote: ↑ Just because I am a licensed realtor , I do not pretend know a whole lot more about these anomalies than someone else. I do however think that a couple of these examples do not give any indication of a "trend" one way or the other. Fall should bring some more clarity to the equation. Or not.

tradinghumble wrote: ↑It may go down temporarily and I hope Condo prices go down just so I can buy more.
People still live to live downtown and the population is not getting smaller, it’s just a temporary negative cloud.
Toronto condo prices are a bar again even compared to places like Mumbai or San Paulo.

I think the most concerning aspect is the quality of tenants, very poor at the moment.

Personally I rather leave a property closed for a year than rent to unqualified tenant.

tradinghumble wrote: ↑ It may go down temporarily and I hope Condo prices go down just so I can buy more.
People still live to live downtown and the population is not getting smaller, it’s just a temporary negative cloud.
Toronto condo prices are a bar again even compared to places like Mumbai or San Paulo.

I think the most concerning aspect is the quality of tenants, very poor at the moment.

Personally I rather leave a property closed for a year than rent to unqualified tenant.

Shaun80 wrote: ↑ My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .

Shaun80 wrote: ↑ My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .

Shaun80 wrote: ↑ My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .

RFD11111 wrote: ↑ The Google affiliate Sidewalk Labs has just done that by scrapping a controversial plan to develop a new multi-use neighbourhood dubbed “Quayside,” along Toronto’s eastern waterfront, citing the “unprecedented economic uncertainty” brought about by the COVID-19 pandemic. This may the canary in the coal mine.

VanByTheRiver wrote: ↑ While this is true, a reduction in rental property purchasers implies a reduction in demand - which I'd expect to place downward pressure on prices.

JayLove06 wrote: ↑ I don't know how much it had to do with COVID 19. Seemed like a good out for them. Just like many other companies have and will hit the eject button and blame it on COVID as an easy way out.