Marketing Managers
Demand Trends for the Canadian Market:
Transitioning from the Autumn chill of September to the brisk winds of October, Canada's rental market shows a continued slowing. As the temperature continues to creep ever so downwards, so too does renter willingness to move.
October marks the halfway point of the final decline in the 2023 leasing season, and a third of the way through the slowest period of rental demand in the annual leasing cycle. This decline in demand will be well received by some who are pressured in their housing search by the imbalance of supply of units and demand posed by renters. Unfortunately, tight market conditions across major markets will limit the potential benefits of decreased demand, including declining rents and increased concession offerings.
Throughout October we saw demand scores declining across the country. A majority of this was experienced in the form of declining prospect counts, while available property counts only experienced a slight decline. This is a pattern that emerged in the previous month and held firm, a strong indicator that we are returning to conventional market trends as we progress further into the final months of the year.
We are unlikely to see significant shifts in average rents, largely due to the persistently low vacancy rates across the country and the limited overall supply of vacant units. This indicates that while the market may be cooling, it is not undergoing drastic changes in terms of macroeconomic conditions, or seeing a resolution to the root issue plaguing many markets, which is the insufficient supply of rental units.
Both October and September had a change of demand score divisors. This change brings down the threshold used to calculate the demand scores, meaning that while the market is slowing , the rate at which it is slowing is below what was experienced last year.
In the following sections, we 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 Canadian Cities in Demand
Notable Changes in Demand Over the Past Month
Although demand scores show a marginal increase, this is a direct result of changing demand score divisors which acted to inflate overall demand scores. In reality, both prospect and property counts continued to decline for the second month in a row. Albeit at a lower rate than the previous month.
Unique prospects are down -17.7% nationally, while average prospects per property are down -16.5%. The slightly lower average prospect per property count is due to a lower relative monthly decline in property counts of -1.5% month over month.
The top 10 markets saw a similar decline with prospects down -16.7%, and properties relatively stable at +0.4%. Given that the demand for rental properties is not continuing to accelerate relative to last month, we expect the remainder of the calendar year to continue showing similar demand trends on a month-over-month basis.
Month-Over-Month (M/M)
- Primary: Demand scores are up +2.1%
- Secondary: Demand scores are up +4.6%
- Tertiary: Demand scores are down -2.8%
Month-over-month (M/M) National demand scores are up +2% in October 2023 compared with September 2023. October shows a continued decline in demand, albeit at a slower rate compared to September.
Notable Changes in Demand Over the Past Year
Relative to last year; this year sees greater variability in annual demand trends, with primary and tertiary markets showing growth in overall demand scores, thanks in part to an imbalance between the decline of unique prospects and available properties.
Year-Over-Year (Y/Y)
- Primary: Demand scores are up +33.7%
- Secondary: Demand scores are down -12.2%
- Tertiary: Demand scores are up +39.1%
Year-over-year (Y/Y): National demand scores are up +26.5% in October 2023 compared with October 2022. Annual comparisons are not directly correlated as they are calculated using different demand score divisor and therefore may not adequately represent shifts in market conditions or changes in rental demand.
An Analysis of Key Canadian Markets
To provide a more detailed analysis of the rental demand in specific markets across Canada, we have segmented our market data into 3 key market segments.
- Primary (Populations Over 600K)
- Secondary (Populations Between 235-600K)
- Tertiary (Populations Between 100-235)
Examining these market segments individually offers a deeper understanding of demand patterns within larger population centers, and allows us to identify trends across markets.
Primary Markets (Populations >600K)
Primary Market Drill Down (M/M): October 2023 vs. September 2023
Notable Changes in Primary Markets Over The Past Month *Overall demand scores are up +2.1% month-over-month, unique prospects are down -18.5%, and properties are down -2.5%.
Although demand scores are up, this is not reflective of the downward decline of both prospects and available properties. Primary markets saw the second-highest declines in unique prospects, with prospect counts now far below those experienced last year. Available property counts similarly continue to decline for the second month in a row suggesting that even with reduced renter demand we are unlikely to see relief in the immediate future. Although a greater number of prospective renters are choosing to remain in place, many will continue to sign leases and move out of necessity. And through this fact in combination with the reduced turnover of renters staying in place; vacancy rates are likely to be driven further downwards and result in a further tightening of market conditions and availability.
Renters in urban centres will continue to feel the pain as availabilities dry up and the market slows into the final months of the year. Prospect counts will decline, but relief is unlikely.
Primary Market Drill Down (Y/Y): October 2023 vs. October 2022
*Year-over-year demand scores are up +33.7%, prospects are down -19.4%, and properties are down -13.0%.
Annual demand scores trend upwards for the fifth month in a row in primary markets. Although primarily the result of changing demand score divisor which results in higher overall demand scores being calculated currently, it remains true to an extent that prospect availability is declining at a greater and more accelerated rate when compared to property availability.
Secondary Markets (Populations ~235-600K)
Secondary Markets Drill Down (M/M): October 2023 vs. September 2023
Notable Changes in Secondary Market Demand Over The Past Month
*Secondary markets demand scores are up +4.6% month-over-month, unique prospects are down -14.0%, and property counts are up +0.4%.
Secondary markets saw unique prospects decline by over 31x the rate of change of properties which saw a relative stabilization from last month, with minimal monthly movement. Secondary markets maintain the highest demand scores of all market segments with a total average score of 3.3 compared with the national average of 2.5. Secondary markets have also maintained the lowest rates of prospect decline.
We expect secondary markets to show greater staying power and maintain below-average declines in prospect counts in the near term.
Secondary Market Drill Down (Y/Y): October 2023 vs. October 2022
Notable Changes in Secondary Market Demand Over the Past Year
*Overall, year-over-year demand scores are down -12.2% year-over-year, with prospects down by -32.8%, and properties up +10.5%.
Even with the increase in available properties for the fourth month in a row, the above-average decline in prospects resulted in overall demand scores declining well above what has been experienced by other market segments, or the broader country.
Although overall, secondary markets are down year-over-year, London, Victoria, and Oshawa remain exceptions with annualized growth in demand scores due primarily to increased prospect counts, and stable property counts.
Tertiary Markets (Populations ~100-235K)
Tertiary Markets Drill Down (M/M): October 2023 vs. September 2023
Notable Changes in Tertiary Market Demand Over The Past Month
*Demand scores in tertiary markets declined by -2.8 % month-over-month, unique prospects are down -20.7%, and available properties are down -0.4%.
Tertiary markets saw the greatest monthly declines in prospect counts and subsequently, average prospects per property which is an indicator of the relative demand likely experienced at the building level. None of the tertiary markets in our demand rankings were immune this month with significant prospect declines seen across the list of markets suggesting that this trend is not related to geography, but instead seasonality.
The overall order of tertiary markets remains unchanged except for Sudbury which moved down 3 spots, along with the returning Oakville, which requalified by meeting the minimum numbers of available properties in October.
Tertiary Markets Drill Down (Y/Y): October 2023 vs. October 2022
Notable Changes in Tertiary Demand Over the Past Year
*Overall, year-over-year demand scores are up by +39.1%, unique prospects are down by -5.7%, and available properties are down -2.1%.
For the fifth month in a row, we see growth in annual comparisons of demand scores which suggests that these markets have not only recovered from their post-pandemic lull but are more resilient relative to larger more affluent markets. The overall market remains relatively stable with prospect counts only slightly below that of last year, along with property availability holding firm.
Tertiary markets are likely in a better position this year than last year given their stronger staying power, and limited year-over-year changes in unique renters, and available properties. Tertiary markets are likely to continue showing more muted change year over year moving into the winter months.
Conclusion
October data shows that the rental market continues to slow as the weather cools, and more prospective renters are ending their rental search. As the temperature drops, so does the renters willingness to commit to the moving process showing the resurgence of seasonality even amidst Canada's tightest rental market on record.
Approximately a third of the way through the final decline in the 2023 leasing season, we find ourselves in a protracted period of subdued rental demand. While this slowing is often associated with a reduction in rents; the tight market conditions being experienced by many major markets are likely to limit any softening in rents or major offerings of concessions without any interruptions to the rental market, or shifts in the broader economy.
Prospect counts continued to decline for the second month in a row however less dramatically than in September which marked the first month of slowed rental demand. Property counts on the other hand experienced limited overall movement down only -1.6% month-over-month nationally, or -1.5% amongst our top 40 markets.
Despite all the signs pointing to a continued deceleration in rental demand, the outlook for average rents is modest, with continued growth expected. The persistent presence of low vacancy rates across the country, and the limited overall supply of available units will mitigate the impacts of slowed demand. This suggests that while the market may be cooling, it is not experiencing structural changes to supply or significant shifts in the macroeconomic conditions affecting the rental market.
October continues down the path of shrinking prospect counts. While property counts are relatively stable for the moment, they are likely to show signs of decline in the coming months. With more people choosing to remain in place; turnover will continue to shrink and in response available units will decline. Such conditions lead to further strain on the rental market, and will likely lead to tighter market conditions before next year's leasing season even begins. With increased rents driving longer-term stays for tenants, it's more important than ever to secure the highest-quality tenants available by focusing on high-quality lead sources.
Methodology
To present this data, Rentsync has determined three key calculations for each area of the report, They are as follows:
Demand Score: Our demand score is rated out of 10 (with 10 being the highest score a city can receive), and is calculated based on unique leads per property, per city, and compared against benchmark data.
For Example North York, ON received a demand score of 7.6 this month, versus 7.7 last month. North York experienced a -0.1 point decrease in its demand score.
Demand Percentage (% +/-): This is determined according to the year-over-year (YOY) or month-over-month (MOM) increase or decrease in unique leads per property.
For Example The month-over-month demand scores in North York, ON went down -0.5 % in October 2023 versus September 2023, while maintaining its position within our rankings as the highest-achieving market in September. The year-over-year demand score in North York increased by 1.2 points representing a 20% increase from October 2022.
Position: The position is determined by unique leads per property, with cities that have at least *20 properties or more. The position will vary depending on demand.
For Example This month, North York, ON achieved the top spot on our Top Canadian Cities in Demand rankings and is up 1 position from last year.
*This report provides month-over-month rental listing data for October 2023 versus September 2023, as well as a year-over-year comparison from October 2023 versus October 2022. It also outlines the month-over-month and year-over-year trends in primary, secondary, and tertiary markets.
