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No Breaks for Tenants in Toronto


No Breaks for Tenants in Toronto

New Forecast From JLL Predicts Vacancy Rates to Head Lower in 2018 as Unit Prices Head to $200,000 in City

Pictured: Michael Betsalel, senior vice president of JLL Capital Markets.

Multifamily units are selling for close to $200,000 in Toronto, but even at that price a new report from JLL says they are still trading well below replacement cost, and with little new construction the firm predicts tighter vacancy rates in 2018.

Expanded rent control rules brought in last year, which now impact all buildings in the province, will make life harder for renters who were already dealing with the reality of a 2.1% province-wide vacancy rate, the firm says in an eight-page forecast for the country.

“We think that rent controls will worsen it by further reducing supply and driving vacancy rates even lower,” the firm concludes, about the position of renters.

The new rules brought in last year allow landlords to increase rents once a tenant moves out of a unit but otherwise increases are limited to the rate of inflation and capped at 2.5%.

Despite the rules, JLL called investor demand “voracious” as institutional capital and private investors seek stable and long-term plays.

“We are currently witnessing very limited vacancy, and rents are increasing tremendously on turnover,” said Michael Betsalel, senior vice president of JLL Capital Markets. “We are currently witnessing very limited vacancy, and rents are increasing tremendously on turnover. The government must offer incentives to construct new rental properties in order to improve the size and quality of the rental pool, as the most recent rental legislation that extends guideline rental increases on all apartments has reduced the appetite for developers to build.”

Even with Toronto’s tightening market, Vancouver is still the strongest in the country with vacancy rates in the metro area below 1% and some submarkets below 0.2%. Some secondary markets are at 0%.

“Factors contributing to low vacancy rates are high cost of home ownership, tenants moving away from the city markets due to rents being so high seeking more affordable rental rates, in-migration of new residents, and a lack of supply,” the report says, concluding that some new developments under construction should relieve some pressure in 2018.

In Montreal, the vacancy rate of 3.9% provides for a little more stability, but investment performance for multi-residential assets had some of the highest returns since 2012, JLL says. The firm says there was an increase in rental stock that will continue into 2018 but expects rental demand to remain strong due to net migration.

“We foresee that costs per door in certain regions will continue to go up, but not dramatically. We are already at very aggressive door costs and cap rates,” JLL says in its report.

In Alberta, the firm sees improving fundamentals in both Calgary and Edmonton. Calgary’s vacancy rate declined 0.7% in 2017 to 6.3%, and JLL expects more of the same in 2018.

“The recent improvement in oil prices should encourage immigration while improving the unemployment rate. Affordability concerns for single-family housing due to higher interest rates and tighter lending controls will also contribute to a decreasing vacancy rate in 2018,” the report concludes.

In Edmonton, vacancy stayed at 7% – where it was in 2016 – but for the first time in three years there had not been any upward movement. JLL says landlords are finally able to taper off some of the incentives they have been offering to induce tenants to sign.

Garry Marr, Toronto Market Reporter  CoStar Group   

Source: No Breaks for Tenants in Toronto

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