Marketing Managers
Demand Trends for the Canadian Market:
Seasonality has made a robust comeback in Canada's rental market, as we witnessed a significant decline in overall demand throughout September. Having already surpassed the peak in annual leasing activity, it appears that demand trends are poised to continue their descent as we approach the year's end and transition into the new year.
As the weather continues to cool, coming closer to the winter months a greater number of prospective renters will choose to remain in place and forgo a rental search. This will result in fewer leads, and ultimately fewer lease signings as quality prospects become more scarce. Although this drop in demand will slow leasing, it is not likely to have significant implications on average rents as overall vacancy rates remain low, and supply is limited.
While it may not be a welcome sight for many leasing professionals and property managers looking to fill vacancies; it means that even in the face of strong demand, and shrinking vacancies, the market is returning to more conventional trends and will experience some cooling. The outcomes of this cooling are uncertain, however, the much-needed rent relief many have been hoping for will come in the form of slowed rent growth, and potentially a less competitive experience for renters still searching for their next home.
Tertiary markets show the strongest staying power with a lower relative decline in unique prospects compared to our top 40 markets. Likely a combination of smaller populations resulting in smaller overall declines, as well as these communities offering a lower cost of living, with many maintaining access to major employment centers and amenities thus maintaining a draw on those looking to raise a growing family and enabling them to maintain stronger levels of renter demand.
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
A growing number of prospective renters are leaving the market and ending their rental searches unsuccessfully. Whether through choice or necessity unique prospects are down -23.9% nationally, while average prospects per property trails behind down -20.4% month–over–month. The top 10 markets in our demand rankings are not immune to this trend and are down on average -26% monthly. Overall demand scores are similarly down -15.5% as lead generation slows and fewer renters submit leads. Tertiary markets saw the lowest relative declines in market fundamentals with a lower-than-average decline in both available properties and unique prospects with overall demand scores down only -12.2% monthly.
Month-Over-Month (M/M)
- Primary: Demand scores are down -14.6%
- Secondary: Demand scores are down -17.8%
- Tertiary: Demand scores are down -12.2%
Month-over-month (M/M) National demand scores are down -15.2% in September 2023 compared with August 2023. Building off of August’s slowing trajectory, September saw the first month of significant declines.
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. Nationally demand scores are down -1% year-over-year, while our top 10 markets see a more exaggerated decline of -11.6% annually.
Year-Over-Year (Y/Y)
- Primary: Demand scores are up +6.9%
- Secondary: Demand scores are down -33.7%
- Tertiary: Demand scores are up +6.9%
Year-over-year (Y/Y): National demand scores are down -1.0% in September 2023 compared with September 2022. Prospects declined at approximately twice the rate of property availability.
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): September 2023 vs August 2023
Notable Changes in Primary Market Demand Over The Past Month
*Overall demand scores are down -14.6% month-over-month, unique prospects are down 23.7%, and properties are down -4.9%.
Primary markets saw declines in rental demand second only to secondary markets which had the greatest monthly declines of any market segment. Primary markets saw outsized declines in unique prospects which coupled with a growing trend of shrinking property counts resulted in not only fewer properties for renters but a -19.7% decline in average prospects per property. The percentage of renters in our top 40 markets residing in primary urban centers has decreased by -6.6%. This indicates a notable acceleration of the trend observed over the past two months. Smaller communities, on the other hand, are sustaining robust fundamentals and are increasingly drawing the interest of Canadians.
This outsized decline in prospect counts was predicted in August and will likely continue into the coming months as prospect counts continue to freefall into Winter.
Primary Market Drill Down (Y/Y): September 2023 vs September 2022
Notable Changes in Primary Market Demand Over The Past Year
*Year-over-year demand scores are up +6.9%, prospects are down -16.2%, and properties are down -14.0%.
Annual demand scores are up for the fourth month in a row for primary markets. This is the result of changing demand score divisor which accounts for annualized shifts in rental demand, alongside the limited movement of average prospects per property of -2.6% which suggests that overall market conditions for properties have not shifted that dramatically, and leasing activity remains in line with what was experienced last year.
Secondary Markets (Populations ~235-600k)
Secondary Market Drill Down (M/M): September 2023 vs August 2023
Notable Changes in Secondary Market Demand Over The Past Month
*Secondary markets demand scores are down -17.8% month-over-month, unique prospects are down -27.9%, and property counts are down -6.7%.
Secondary markets saw prospects decline at over 4x the rate at which available properties declined. Because of this outsized decline in prospect counts, average prospects per property declined by -22.8% which is the largest decline seen by any segment of Canadian markets this year. Although this decline is larger than seen last year, and certainly more dramatic than what was experienced by either primary or tertiary markets, it should not be a cause for concern.
Secondary markets will likely continue to see significant declines in prospect counts leading into December however given their strong maintained demand throughout the year, along with greater perceived affordability, we expect these markets to return next year with strong leasing demand.
Secondary Market Drill Down (Y/Y): September 2023 vs September 2022
Notable Changes in Secondary Market Demand Over The Past Year
*Overall, year-over-year demand scores are down -33.7% year-over-year, with prospects down by -35.6%, and properties up +6.5%.
Even with the increase in available properties annually for the third month in a row, the above-average decline in prospects resulted in overall demand scores declining well above what is experienced by the broader country, or other market segments.
Even with the outsized decline in prospect counts, secondary markets maintain an average prospects per property count that is 1.7x higher than that of tertiary markets, suggesting that even with a lower relative number of renters on market, these markets maintain strong market fundamentals.
Tertiary Markets (Populations >600k)
Tertiary Market Drill Down (M/M): September 2023 vs August 2023
Notable Changes in Tertiary Market Demand Over The Past Month
*Demand scores in tertiary markets declined by -12.2% month-over-month, unique prospects are down -20.8%, and available properties are down -4.0%.
Tertiary markets saw the lowest relative monthly decline in prospect counts at -4%. Notably, this month saw Sudbury, Burlington, St. Catharines, Cambridge and Guelph increase their rankings within the top 10 tertiary markets.
Tertiary Market Drill Down (Y/Y): September 2023 vs September 2022
Notable Changes in Tertiary Market Demand Over The Past Year
*Overall, year-over-year demand scores are up by +6.9%, unique prospects are down by -2.4%, and available properties are up +0.2%.
For the fourth 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. This trend will be important to continue to monitor as we approach the final months of the year to determine if this is a temporary plateau, or if tertiary markets have regained their lost momentum and will experience a more moderate slowing of rental demand this season.
Considering the lack of available rental supply in many Canadian markets, Tertiary markets are well-positioned to continue attracting prospective renters from larger more competitive markets. These markets remain attractive options, especially for those working remotely, or looking for a smaller more affordable community to call home. Tertiary markets are adapting in response to changing demand, making them more resilient in the face of broader market conditions.
Conclusion
In contrast with last month's optimistic view, September painted a stark picture of declining rental demand and, signalling a return to the expected seasonal decline in Canada’s rental market. Well past the peak in annual leasing activity, we're likely to continue seeing rental demand in freefall throughout the remainder of this year.
As the weather continues to cool leading us closer into winter, more renters will choose to remain in place. Choosing the comfort of their current homes, over that of a cold and frustrating move. This will result in the inevitable and continued decline of prospective renter counts, fewer leads, and as a result, fewer lease signings. Similarly available properties are also in decline. With fewer people choosing to move, turnover is reduced which results in fewer units being made available for rent.
While the decline in rental demand should be no surprise to those responsible for leasing and managing rental properties, it nonetheless poses a challenge to those looking to lease up new properties, manage occupancies, and maintain healthy lead flow. Regardless, this decline suggests a return to conventional market dynamics and the cooling-off period which many renters have been hoping for. While the outcome of this cooling is uncertain, and given the supply issues present in most rental markets we are unlikely to see significant rent declines, this cooling period will nonetheless slow rent growth and give those renters who may have been timing their next move a chance to act.
Overall September signals a shift towards more typical seasonal market behaviour, With slowing renter demand, and a shrinking number of available properties this would typically lead to shrinking rents. However, with the imbalance between the demand for rental properties, and the available supply of rental stock across the country this year's winter slowdown is not likely to result in significant rent reductions, with demand remaining relatively robust as renters have fewer and fewer options left available for them. As Canada continues to grapple with tightening market conditions, property owners and managers should stay proactive in adapting to slowing lead volumes, and ensure that they focus on high-quality lead sources to fill vacancies fast.
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 7.1 this month, versus 7.4 last month. North York experienced a -0.3 point increase 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 -4% in September 2023 versus August 2023, while maintaining its position within our rankings as the highest-achieving market in September. The year-over-year demand score in North York decreased by -0.4 points representing a -5% decrease from September 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 3 positions from last year.
*This report provides month-over-month rental listing data for September 2023 versus August 2023, as well as a year-over-year comparison from September 2023 versus September 2022. It also outlines the month-over-month and year-over-year trends in primary, secondary, and tertiary markets.
