A new report shows that the Toronto area is experiencing its first annual decline in average condo rents since 2021, mainly due to an increase in condo completions.

According to the report by Urbanation, the market saw average condo rents decrease 1.2 per cent in the Greater Toronto Hamilton Area (GTHA) during the second quarter of this year compared to last year. From April to June, rents dropped 1.2 per cent annually to $3.97 per square foot, or $2,723 for a 686 square-foot unit.

This is the first decline in three years — the last time rents dropped year-over-year, it was during the height of the pandemic when demand for rental units dropped considerably.

“Rents are experiencing some softening mainly due to a temporary spike in condo completions, which will subside following the steep drop off in new condo sales and construction activity,” Shaun Hildebrand, president of Urbanation said in a statement.

The report shows that rents for multi-room units declined the least — three-bedroom rents dropped only 0.6 per cent from a year ago to an average of $3.83 per square foot (or $3,988 for a 1,041 square-foot rental unit) and two-bedroom rents dropped 0.9 per cent compared to last year, to an average of $3.54 per square foot (or $3,143 for a 889 square-foot unit). Rents for one-bedrooms declined slightly (1.8 per cent from a year ago) to an average of $4.14 per square foot (or $2,450 for a 591 square-foot unit), but studios showed the largest annual drop in rents, decreasing 3.9 per cent to an average of $5.18 per square foot (or $2,047 for a 395 square-foot apartment).

Even with overall rent declines, there was still strong demand during the second quarter. The number of condo lease transactions in the GTHA reached a record high of 16,169 units from April to June of this year, which is a 29 per cent increase compared to last year and 60 per cent above the 10-year average. But the number of condos listed for rent during the second quarter also increased by 47 per cent to 21,695 units — the listings surged in part because the number of newly registered condos increased 82 per cent annually to 8,380 units.

When looking at averages by region — in the City of Toronto, rents didn’t see as much of a drop, declining 2.1 per cent annually to an average of $4.10 per square foot (or $2,765 for a 674 square-foot apartment).  Average purpose-built rents in the city remained almost flat, decreasing by just 0.5 per cent annually to $4.46 per square foot (or about $3,104 for a 696 square-foot spot).   Rents in the 905 were the outlier — they increased 2 per cent annually to an average of $3.63 per square foot (or $2,610 for a 719 square-foot unit). Average purpose-built rents in the 905 also increased by 7.7 per cent annually to $3.39 per square foot (or about $2,639 for a 778 square-foot unit).

Vacancy rates for purpose-built rentals in the GTHA since 2000 rose to an 11-quarter high of 2.7 per cent in Q2  (a slight increase from 2.6 per cent during the first quarter of 2024 and 2.2 per cent a year ago). The vacancy rate reached 2.8 per cent in the City of Toronto and 2.6 per cent in the 905 region.

The report suggests that as vacancy rates gradually crept up, rent growth for these purpose-built rentals  slowed to a 2.2 per cent annual pace in Q2 of this year, with rents reaching an average of $4.08 per square foot (or $2,953 for a 723 square-foot unit).

It looks like there’ll be more units available for rent. About 1,558 purpose-built rentals began construction in the second quarter of this year, a 43 per cent increase from a year ago. Construction starts totaling 3,131 units in the first half of 2024 rose 13 per cent compared to last year and were up a whopping 190 per cent from the first half of 2022.

Still, according to Hildebrand: “While some recent improvement to rental construction has been occurring, the level of starts for rentals remains much too low to keep pace with demand over the longer-term.”

Another recent report released by Urbanation with CIBC Economics suggests that the GTA condo market is in a state of “economic lockdown.” The report suggests that prices are too high for investors to buy relative to resale prices, rents, and interest rates, while developers can’t lower condo prices due to high development costs.