Toronto Downtown Core Condos, Rental Drop, September and Beyond
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. Between University of Toronto St George Campus (62k students), Ryerson (47k students), George Brown College (26k students), OCAD (6k students), total: 141k students. Let us assume 1/2 needs market housing (1/2 live at home, or originally in residence) and 2 students per condo. You are talking about potentially 35k rental supply units coming to the market in September that we have not seen or priced in yet.
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). It's very likely the 2020 rental season is wiped out. There could be an additional 30-40% 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.