Toronto developers have long favoured building condominiums at the expense of purpose-built rental apartments, but that is beginning to change.<\/p>\n
Chronically low vacancy rates in Metro Toronto have caused rents to spike in a mere matter of years, thereby providing developers the economic panacea that has eluded the purpose-built rental market for decades.<\/p>\n
\u201cMore groups are looking at rentals simply because rents keep rising, and if you look back five or 10 years, condos were more lucrative and that\u2019s because rents weren\u2019t at a level that allowed rental apartments to compete with them,\u201d said Keith Reading, director of research at Morguard. \u201cIf you look at Toronto especially, but most of the country\u2019s major cities, rents have gotten to levels whereby rental apartments have become better propositions financially, and especially over longer terms, because the money coming in doesn\u2019t stop, whereas with condos it does stop.\u201d<\/p>\n
Condominiums still make sense for developers because of the expeditious exits, but tempests have emerged in the retail sector and REITs\u2014which typically don\u2019t have development experience\u2014are starting to diversify their portfolios.<\/p>\n
\u201cIf you\u2019re looking at the longer term and you\u2019re a REIT, like RioCan, there\u2019s a lot of change and certainly some headwinds, with income for retail developers uncertain going forward\u201d said Reading. \u201cThey\u2019re looking to buffer against what should be declining income, and a great way to do that is to develop rental apartments because they get long-term rental income and it augments their retail income, which is flat and declining.\u201d<\/p>\n
When investing solely in the condominium market, there\u2019s little, if any, protection against a slump in the market or even just the sector. However, rental income, which is consistent and well-nigh guaranteed to rise over time, is a safety net during times both thick and thin.<\/p>\n
\u201cThe reality is during an economic downturn, apartments tend to perform quite well, and the reason is when people are concerned about the economy\u2014and about their jobs\u2014they won\u2019t purchase single-family homes or condos. In that way, your income from apartments is pretty constant,\u201d said Reading.<\/p>\n
\u201cRental demand is much stronger than supply, so you\u2019re definitely looking at rent growth going forward, and that\u2019s what some developers are paying attention to. There are so many condos being built at the moment that the market is extremely competitive, but that\u2019s not the case with rentals, where there\u2019s less competition and less supply.\u201d<\/p>\n
Today\u2019s purpose-built rental units in Toronto look nothing like those built between the \u201860s and \u201880s\u2014inside and out, they resemble condos\u2014which is one reason the rents commanded are ameliorating the economics for developers. One such building, The Livmore, in the heart of downtown is a luxury purpose-built rental, and while it\u2019s rent-controlled\u2014because it was developed before the Ontario government repealed rental increase caps on new builds\u2014voracious demand for its units helped reverse the city\u2019s condo-only mentality.<\/p>\n
\u201cEven five years ago, we were in the midst of a condo boom because developers weren\u2019t being handcuffed by how much money they could make. Now the pendulum has swung back because without rent control you could theoretically raise rents as much as you want,\u201d said Todd Nishimura, senior director of marketing, leasing and communications at GWL Realty Advisors.<\/p>\n
\u201cWe\u2019re seeing conversions now\u2014projects that started as condominiums started turning into rental apartments once rent control was lifted.\u201d<\/p>\n
The Livmore was developed by GWL Realty Advisors, a subsidiary of an insurance giant that also came to the conclusion purpose-built rentals are excellent for portfolio diversification.<\/p>\n
\u201cWe\u2019re owned by a large insurance company, Great West Life, and multi-residential has become more attractive because it\u2019s consistent cash flow,\u201d said Nishimura. \u201cYour return may not be as large as in a condo\u2014although you have to get a condo right and hit the market at the right time\u2014and your short-term investment on a condo is higher than with purpose-builts, but the latter is more reliable because people will always need places to live.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Toronto developers have long favoured building condominiums at the expense of purpose-built rental apartments, but that is beginning to change. Chronically low vacancy rates in Metro Toronto have caused rents to spike in a mere matter of years, thereby providing developers the economic panacea that has eluded the purpose-built rental market for decades. \u201cMore groups […]<\/p>\n","protected":false},"author":6,"featured_media":27251,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/8474"}],"collection":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/comments?post=8474"}],"version-history":[{"count":2,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/8474\/revisions"}],"predecessor-version":[{"id":22142,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/8474\/revisions\/22142"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media\/27251"}],"wp:attachment":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media?parent=8474"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/categories?post=8474"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/tags?post=8474"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}