Marketing Managers
Rentsync's monthly demand report is now out for October and the most notable trend is that apartment demand is down for the first time this year. September marked the end of the hottest year in leasing and brings the Canadian rental market into a period of reduced demand and an overall softening of market conditions.
For the first time in 2022, prospects declined more than available properties, resulting in average prospects per property declining by -16.8%. Although only a recent shift, demand continues to trend downwards which may result in relief for renters however that is unlikely to be realized in the coming months as market conditions remain tight and property availability is at an all-time low.
Renters are likely showing signs of exhaustion from recent rent hikes and are responding by staying in their units as opposed to moving. When coupled with the expected seasonality of rental demand, we will likely see a further decline in demand in the near future. The period of easy leasing is over and as demand wanes property owners and managers are going to have to be more proactive than ever if they want to stay competitive.
Below we will identify notable changes in rental demand across Canada, highlight market-specific trends, and discuss what the coming months may look like for rental demand in Canada.
Top 35 Canadian Cities in Demand
Notable Changes in Demand Over the Past Month
Demand scores have reversed and are down across the country with an average decrease of -16.8% across the country. Although partially due to seasonality the steep decrease in demand can also be attributed to renters' reduced willingness to move in favour of remaining in their current homes and reducing the burden of rent. Halifax maintained the top spot from August with a substantial lead over the second highest market Etobicoke with an +11% higher demand score.
Month-Over-Month (M/M)
- Primary: Demand scores are down -17%
- Secondary: Demand scores are down -21%
- Tertiary: Demand scores are down -15%
Property availability and the number of prospective renters both declined across the country. Secondary markets experienced a slight shift with a minimal increase in property availability of +1.5 suggesting that these communities may be experiencing a softening of market conditions.
Year-Over-Year (Y/Y)
- Primary: Demand scores are down -8%
- Secondary: Demand scores are down -26%
- Tertiary: Demand scores are down -48%
Year-over-year (Y/Y): Nationally demand scores are down -18.8% in September 2022 compared with September 2021. Although overall demand scores are down individual properties remain in a better position; with properties down by -45%, and prospects down by -23.6% the average prospects per property are up by +39% year-over-year. Average lead volumes are similarly up from 2.11 to 3.67 year-over-year suggesting that on average properties are maintaining strong lead flow.
The year-over-year analysis looks at average market conditions and lacks the perspective of property types meaning that while average market conditions may have improved year-over-year there this is not the case for all properties. Properties achieving market-leading rents are down substantially more year-over-year with respect to average prospects per property.
September marks the introduction of the winter leasing season and the associated slowdown in rental demand. Whereas September 2021 represented a period of strong availability, and gradually increasing demand, September 2022 marks a return to conventional market conditions and a gradual softening of demand.
Top 10 Canadian Cities in Demand Drill Down (M/M): September 2022 vs. August 2022
Key Trends for Top 10 Canadian Cities in Demand (M/M)
The top 10 markets are experiencing a softer decline than the broader country with prospects decreasing by -17.8%, and property availability by -2% month-over-month. The top 10 list was dominated by a mix of secondary, and primary markets with Halifax taking the number one position. Ontario's presence in the top 10 is maintained with 7 markets located within the province with the remaining spread across the country.
Rental rates continue to trend upwards with one-bedroom units increasing by +2.3% month-over-month. Although rental rates have been trending upwards throughout the last year given the imbalance between prospective renters and properties rental growth will likely slow as markets become less competitive and more renters chose to remain in their current homes, or live with family in place of paying the high rents demanded by the market. While demand continues to tighten in these markets, this is likely temporary and will reverse as we enter the winter season.
Top 10 Canadian Cities Drill Down (Y/Y): September 2022 vs. September 2021
Key Trends for the Top 10 Canadian Cities in Demand (Y/Y)
Year over year we see an increase in unique prospects +3.7%, and a decline in available properties -45.4%. Although recent trends have shifted this overall shift is due to two major factors. First, 2021 was a slow leasing year for primary markets with much of the demand shifting towards smaller secondary and tertiary markets, and second, the strong leasing experienced throughout 2022 resulted in substantially lower property availability rates.
Overall market conditions are substantially tighter this year when compared with last year with fewer properties available, and more renters competing for this shrinking supply of available properties. This resulted in demand scores increasing by +78.7% year-over-year, all while property availability comes to an all-time low.
The top 10 markets are excellent indicators of the gradually waning demand we are likely to see moving forward as both the composition of markets and astronomically high growth figures we saw last year are now gone. Moving forward we are likely to see a continued softening of annual growth amongst the top 10 markets as current monthly figures are depressed when compared to the stratospheric leasing seen throughout the end of 2021.
An Analysis of Key Canadian Markets
In order 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): September 2022 vs. August 2022
Notable Changes in Primary Markets Over The Past Month
*Overall demand scores are down -17% month-over-month, unique prospects are down -22%, and properties are down -6.7%.
Primary markets which up to August maintained the most positive demand amongst renters; show the highest monthly decline in overall renter demand amongst the three market segments. The loss in renter demand accelerated and outpaced the continued decline in property availability suggesting that more renters are choosing to end their apartment search by remaining in their current homes.
Although rental rates continue to grow it is unlikely that households are being pushed towards secondary or tertiary markets as these communities have also shown declines in demand further suggesting that many are simply choosing to remain in place.
City rankings once again saw little movement with no new markets being added to our top 10 list. These markets represent the highest-demand primary markets across Canada and have also experienced a decline in demand this month.
Primary Market Drill Down (Y/Y): September 2022 vs. September 2021
Notable Changes in Primary Market Demand Over The Past Year
*Year-over-year demand scores are down -8%, with prospects down 16.7%, and properties down -47.3%
Tighter market conditions resulting from a substantial decline in the number of unique prospects alongside a decline in total available properties have resulted in depressed demand scores. This is not all negative however as the greater decline in properties resulted in a substantial increase in the average prospects per property increasing by +58% year-over-year. The strong gains in average renter demand and decline in property availability are due to the strong leasing trajectory experienced throughout the last year which left renters with more competition and resulted in the average one-bedroom unit experiencing a +15.6% increase in rent across the top 10 primary markets.
Year-over-year comparisons over the next three months are likely to be less indicative of overall trends as 2022 enters a period of cooling whereas this period last year represented the headwinds of strong growth as pandemic restrictions slowly lifted and renters re-entered the market.
Secondary Markets (Populations ~600-235K)
Secondary Markets Drill Down (M/M): September 2022 vs. August 2022
Notable Changes in Secondary Market Demand Over The Past Month
*Secondary markets demand scores are down -21% month-over-month, with unique prospects down -19.5%, and properties increasing by +1.5%.
Secondary markets were the only municipalities that saw an increase in property availability. Although small at only +1.5% in additional properties, this figure suggests that overall demand may be weakening. A reduction in prospects typically suggests that many households are successful in their rental search by having signed a new lease, however, this reduction alongside an increase in properties more likely suggests that many households are instead choosing to end their rental search by staying in their existing property thus reducing overall market demand.
Some renters may have been turned off of a new property due to the high rents being demanded. Average rents for one-bedroom apartments increased by +2.2% month-over-month. While average rents are growing, the lack of renter demand suggests that this may be temporary. With the seasonal decline in rental demand throughout the winter months, properties with vacancies are going to have to revise their priorities and review their current rental rates. More so the case within secondary and tertiary markets which have seen demand wane as many chose to return to primary markets.
Secondary Market Drill Down (Y/Y): September 2022 vs. September 2021
Notable Changes in Secondary Market Demand Over the Past Year
*Overall, year-over-year demand scores are down -26%, with prospects down by -33%, and properties down by -47%.
For the first time this year, year-over-year demand scores have declined. September 2021 represents the transitional period between the covid slowdown, and subsequent acceleration of leasing demand, and September 2022 marks the end of 2022's leasing season as we enter the fall and winter months.
The explosive growth experienced throughout 2022 allowed vacant units to be absorbed and market conditions to return to their pre-covid tightening. With a 47% year-over-year reduction in the number of available properties, finding a unit is now harder than ever before. Combined with the 18.25% growth in one-bedroom apartment rents year-over-year; renters are less incentivized now than ever before to move.
Tertiary Markets (Populations ~235-100K)
Tertiary Markets Drill Down (M/M): September 2022 vs. August 2022
Notable Changes in Tertiary Market Demand Over The Past Month
*Demand scores in tertiary markets decreased by -15%, unique prospects decreased by -18%, and available properties decreased by -3.8%.
Tertiary markets have been slowing since March and now show signs of further accelerating as the rest of the country enters a cooling period. With both demand and supply declining average prospects per property are down -14.7% month-over-month leaving any property trying to fill vacancies in a more difficult position as we enter a period of further reduced demand and a less competitive leasing environment.
With the rest of the country beginning to slow down, tertiary markets are likely to experience a more pronounced decrease in demand with many households choosing to either remain in place or move to markets with greater employment opportunities. Typically the first to experience instability in demand are top-of-market properties, which when located in tertiary markets typically target an older resident profile. These individuals are often risk-averse and may lead to tertiary markets experiencing a longer-term decline in overall demand.
Tertiary Markets Drill Down (Y/Y): September 2022 vs. September 2021
Notable Changes in Tertiary Demand Over the Past Year
*Overall, year-over-year demand scores are down by -48%, unique prospects are down by -38%, and property availability is down by -30%.
Tertiary markets saw the greatest swing in demand from the highs of the pandemic when many were looking for an alternative to urban living to the current state with many of those renters having since returned to primary markets in search of better community amenities and connectivity. Much if not all of this focus has come and gone since then with tertiary markets experiencing the highest relative decline in prospects and overall demand.
Year-over-year rent growth for one-bedroom units is up 13.2%, which while lower than both primary and secondary markets stratospheric growth remains strong and has enabled these communities to return to their pre-pandemic highs.
Conclusion
September marks the end of the hottest year in leasing and brings the Canadian rental market into a period of reduced demand and an overall softening of market conditions. Although relatively early on; over the next 4 months we will learn whether this was a temporary blip in what will continue to be a tight rental market next year, or whether September marks a longer-term shift in market sentiment.
The strong leasing trajectory experienced throughout this year resulted in a substantial decrease in property availability and grew rents far and above what was experienced before the pandemic. Renters left with fewer rental products and lower affordability ultimately have fewer options available to them. Some may choose to move, but an increasing number are likely to remain in place. Forgoing the nicer neighbourhood, the better amenities, and the higher associated rents; renters will instead vote with their wallets and stay put.
The decrease in renter demand, in combination with high achievable rents, and a general lack of confidence in the broader economy suggest that overall market conditions are likely to soften. While good for renters who might be looking to move in the coming year, it means more competition amongst property owners looking to fill vacancies.
The period of easy leasing is over and as demand wanes property owners and managers are going to have to be more proactive than ever if they want to stay competitive. As leads decline setting yourself apart from your competitors and taking every advantage available will help fill leases and bring prospects through your doors. The last thing you want is to be caught unprepared as your competitors attract away your potential tenants.
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 Halifax, NS received a demand score of 8.5 this month, versus 9.1 last month. Meaning Halifax experienced a - 0.6 point decline 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 Halifax, NS went down -7% in September versus August 2022 while maintaining its spot as the highest achieving market in September. In September 2022, the year-over-year Demand Score in Halifax went up 0.5 points representing an increase of 6% from September 2021.
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, Halifax, NS moved up to achieve the top spot on our Top 35 Canadian cities in Demand rankings, up 10 spots from last year.
