Rentsync National Rental Demand Report: January Demand Report

Demand Trends for the Canadian Market:

Closing out 2022 the Canadian rental industry as a whole has experienced extremes of demand, run-away rental growth, and the subsequent reversal of trends. December marks both our year-in-review, as well as the next logical step in market conditions with rental rates showing signs of slowing down after 4 consecutive months of decreasing demand. 

Unique prospects maintain a downward trajectory of -9.1% nationally month-over-month, properties have slipped back into the negative; declining by -5.5%, and demand scores declined by -3.9%. These indicators do not suggest any major shifts in market sentiment, nor do they suggest that the ongoing trend of declining demand has finally culminated in the stagnation of overall market principles. Although overall property availability has dipped back into the negative it is likely a result of seasonality. 

With renters making fewer housing changes during the holiday season, the supply side seemingly followed the same pattern with fewer properties being made available, thus decreasing the overall supply of available properties. This housing apathy resulted in the stagnation of rental rates for the first time in 2022 with a monthly one-bedroom change in rents of -0.24%. Although a marginal decline marks a turning point in rents after a year with annual growth of over +13.5% for one-bedroom units.

Entering 2023 we are likely to see a continued tightening of renter demand and the intensification of competition amongst properties with fewer renters looking to move, and more properties become available. This tepid demand and growing supply will likely have the effect of slowing rents. A complete reversal is however unlikely as many of the major markets across Canada are severely undersupplied while also showing low vacancies.

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.

Top 40 Canadian Cities in Demand

Notable Changes in Demand Over the Past Month

Demand scores continue a downward trend with an average decrease of -3.9% month-over-month. Although this decline represents a continuation of ongoing demand trends, it is also due to seasonality with many remaining in place during the holiday season and delaying housing decisions. When combined with the insecurity many hold over our current and future economic conditions many are further dissuaded from moving thus adding to this decline in overall rental demand. December marked a stagnation of market fundamentals as ongoing demand trends begin to show their effects on average rental rates with an average decline of -0.24% month-over-month.

Month-Over-Month (M/M)

• Primary: Demand scores are down -2%
• Secondary: Demand scores are down -7%
• Tertiary: Demand scores are down -8%
   

Month-over-month (M/M) National demand scores are down by -3.9% in December 2022 compared with November 2022. Demand scores are declining at a lower relative rate than the 2 proceedings months due to a decline in both prospects -9.1%, and available properties -5.5% month-over-month.
 

Year-Over-Year (Y/Y)

• Primary: Demand scores are down -11%
• Secondary: Demand scores are down -37%
• Tertiary: Demand scores are down -42%

Year-over-year (Y/Y): National demand scores are down -22.3% in December 2022 compared with December 2021. Demand scores continue to trend downwards annually for the second month in a row. Primarily due to the strong growth trajectory experienced at the end of 2021 leading into the strong maintained leasing period of 2022. Demand scores don't paint the full picture however as unique prospects per property are up +27.6% year-over-year due to the substantially greater decline in property availability (-23.8%) as compared to actual renters (-2.8%). This suggests that although the market has slowed, we aren't in trouble just yet.

An Analysis of The Top 10 Canadian Markets:
 

Top 10 Canadian Cities in Demand Drill Down (M/M): December 2022 vs. November 2022

Key Trends for Top 10 Canadian Cities in Demand (M/M)
 

The top 10 markets fared better than the broader country with a below-average decline in demand scores of -0.8%, and a marginal increase in average prospects per property of +0.8%. Unique prospects are down -7.1%, while properties are down -7.8% month-over-month. Average rental rates have stagnated with a monthly change of +0.1% for one-bedroom units. Too early to say whether this is indicative of a longer-term trend of rent stagnation or whether this slowdown is simply a result of the seasonality of housing demand. The stabilization in rent is going to be received positively by many renters, especially those delaying housing decisions due to rent exhaustion and concerns around affordability. 

With mounting concerns of economic instability on the horizon, the stabilization of rental rates offers a well-needed reprieve that may have the potential to reinvigorate some rental markets by motivating households who would otherwise remain in place to make the jump and move to a new home.

Top 10 Canadian Cities Drill Down (Y/Y): December 2022 vs. December 2021

Key Trends for the Top 10 Canadian Cities in Demand (Y/Y)

Year-over-year the top 10 markets experienced a decline of -18% in demand scores. While demand scores are down, market fundamentals remain strong with average prospects per property up +35.4% year-over-year due to the opposite trends experienced by prospects at +15%, and properties -at 15%. Properties are further depressed due to the timing with many real-estate professionals taking time off throughout December leading to a reduction in the number of re-listings. 

Average rents are also up substantially with an average increase of approximately +18% across the top-ten markets. Although they have shown limited movement in the last quarter, the recent trend of reduced growth figures suggests a general slowdown in rents and demand across much of the country and should be monitored closely.

An Analysis of Key Canadian Markets

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: 

• Primary (Populations Over 600K)
• Secondary (Populations Between 600-235K)
• Tertiary (Populations Between 235-100K)

Here we will gain a deeper perspective on demand across larger population centers and trends in various markets.
 

Primary Markets (Populations >600K)

Primary Market Drill Down (M/M): December 2022 vs. November 2022

Notable Changes in Primary Markets Over The Past Month

*Overall demand scores are down -2.2% month-over-month, unique prospects are down -8.7%, and properties are down 6.7%.

Primary markets are displaying more subdued results during a period of stabilization and receding demand. With a lower relative decline in prospects and overall demand scores when compared to smaller secondary and tertiary markets; likely as a result of strong market fundamentals and value posed by access to employment and amenities within major markets. 

They are however experiencing an outsized reduction in rental rates with an average decline of -1.4% month-over-month, substantially higher than the national average of -0.24. This is likely a result of the higher achievable rents and subsequently larger potential swings in rents as opposed to an indicator that these communities are likely to be harder hit in regards to rent stagnation. This trend will be important to track over the next few months as supply begins to catch up with the lessened demand within these communities and average rents begin to better resemble actual market rents.

Primary Market Drill Down (Y/Y): December 2022 vs. December 2021

Notable Changes in Primary Market Demand Over The Past Year

*Year-over-year demand scores are down -11.3%, prospects are up +7.5%, and properties down -26.2%

Primary markets were first to show signs of returning rental interest in late 2021 with strong leasing activity however this was over-encompassed by the following 8 months of strong growth in renter demand as renter households continued returning to primary markets as COVID restrictions were continuously lifted.

Primary markets remain in a much better position in December 2022 than in the previous year with average prospects per property up +45.6% due to the combination of strongly maintained leasing trajectories and the influx of new renters re-entering the market.

Year-over-year comparisons over the next two quarters are likely to be less indicative of overall trends as we enter a period of cooling into 2023. While 2022 represented explosive growth and subsequent cooling, we are now in the headwinds of a new phase in market demand.

Secondary Markets (Populations ~600-235K)

Secondary Markets Drill Down (M/M): December 2022 vs. November 2022

Notable Changes in Secondary Market Demand Over The Past Month

*Secondary markets demand scores are down -7.1% month-over-month, unique prospects down -9.3%, and properties are down -2.3%.

Secondary markets show the most surprising trends with properties increasing at almost half the rate at which prospects continue to decline. Potentially suggesting that these communities are experiencing a greater impact as property availability has increased well above that seen by either primary or tertiary markets. This has been the case through October as well and may be in part due to the surge in single-family rentals.

With many private property owners concerned about potential economic instability, they are leaning towards renting unused homes to safeguard their real estate investments and maintain their mortgages to 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 the industry. It ultimately offers renters a greater variety of options and may also reduce the tight market conditions many Canadian markets are experiencing.

Secondary Market Drill Down (Y/Y): December 2022 vs. December 2021

Notable Changes in Secondary Market Demand Over the Past Year

*Overall, year-over-year demand scores are down -39.6%, with prospects down by -18.4%, and properties down by -21.2%.

Demand scores continue to drop amidst strong seasonal effects across secondary markets. Secondary markets have historically experienced more substantial declines during the winter season. Likely more interrelated with demographics, than with conventional rental market conditions. These communities much like tertiary markets are typically older and contain a greater proportion of families than larger urban markets. 

Tertiary Markets (Populations ~235-100K)

Tertiary Markets Drill Down (M/M): December 2022 vs. November 2022

Notable Changes in Tertiary Market Demand Over The Past Month

*Demand scores in tertiary markets decreased -8.3% month-over-month, unique prospects decreased by -12%, and available properties decreased by -4%.

Tertiary markets marched in line with secondary markets with strong losses in renter demand resulting in a reduction in the average prospect per property of -8.3% month-over-month. Smaller communities have long been experiencing shrinking demand with many renters choosing larger cities to call home; this was further exacerbated by strong seasonality leading even more potential renters away from a new housing search.

Rents have mostly stabilized with an average monthly change of -0.8% except for East York which maintains a slight monthly rent increase; likely due in part to survivorship bias, and the presence of more premium luxury condominium units remaining available for rent.

Tertiary Markets Drill Down (Y/Y): December 2022 vs. December 2021

Notable Changes in Tertiary Demand Over the Past Year

*Overall, year-over-year demand scores are down by -42%, unique prospects are down by -19%, and property availability is down by -15%.

By December 2021 Tertiary markets had begun to lose their appeal marking the end of what was a strong albeit brief period of leasing interest. Exasperated by the loss attributed to seasonality renters began to return to more conventional markets and allowed for the year-over-year loss of almost 20% of unique renters.

Regardless of the general trajectory of tertiary markets, they maintain strong fundamentals with average prospects per property only down -4.9%. This suggests that although conditions are tighter than they were at the tail end of the pandemic; the strong leasing activity they experienced throughout the past 12 months enabled them to lower vacancies and sufficiently reduce availability to account for the loss in demand.
 

Conclusion
 

December moved away from the trends seen recently and marked what is effectively a blip on the radar with seasonality having an outright impact on overall supply and demand. Whether directly related to the drop-through seasonality; rents have similarly peaked and show an average decrease of approximately $7 across our top 40 markets. Major markets fared better than smaller communities through their resilience and limited supply, while smaller secondary and tertiary markets were more prone and experienced greater losses in average rents.

Too early to say whether rents will accelerate downwards, or whether they will stabilize; however this will offer relief to many of those who have felt price exhaustion from the recent hikes in achievable rents seen throughout much of the country.

If supply and demand return to their November trends; going in opposite directions the likely outcome will be dependent on how long this trend continues. If temporary, this will represent a softening of rents, and more variety for renters; if on the other hand, the trend persists this may have broader repercussions on price and supply as new developments choose to delay construction, and units re-entering the market experience significant price shock. Thus hurting the broader rental industry and likely negatively impacting the country's housing supply.

With the holiday season behind us property owners and managers are going to have to carefully track their vacancies and ensure that they are well-positioned to whether the potential storm is to come. Property counts are likely to continue increasing, while prospective renters dwindle. Leading to a tighter rental market, and more competition amongst available properties.

Book a strategy call with Rentsync to ensure your leasing and marketing initiatives are postioned correctly to maximize incoming leads and fill your available vacancies.