Toronto Multifamily 2023 Outlook
The demand for apartments has increased due to a rise in immigration, a continued return to office, and high homeownership costs, causing a drop in the multifamily vacancy rate to pre-pandemic levels. The Pickering and Ajax submarket have reached near-full occupancy, and some parts of Etobicoke and North York also recorded ultra-low availability. Toronto is expected to see another surge in new settlers this year as the federal government plans to admit a record number of permanent residents. Elevated borrowing costs and short supply are expected to send rents higher despite the expected increase in apartment deliveries.
Total employment is projected to decrease by 1.3 per cent in 2023, resulting in a slight uptick in the unemployment rate. Of the 13,500 units under construction, roughly 45 per cent are expected for delivery in 2023, a 75 per cent increase from 2022, which is fueled by delayed completions of projects that started construction during the pandemic. Following a significant drop in 2022, the vacancy rate is expected to continue to trend down but register a smaller decrease in 2023. Healthy rental demand is expected to continue to put upward pressure on the average effective rent, which is expected to rise above $1,750 per month, a 20 per cent increase from the 2019 level.
2022 Overview
In 2022, construction activity fell from its peak seen in 2021 to a level that is consistent with its pre-pandemic trend. Approximately 40 percent of the deliveries were in Central and North Toronto, followed by 640 units in West Brampton. An increase in immigration and rapidly-rising home purchasing costs bolstered demand for apartment rentals, causing the metro’s multifamily vacancy rate to plummet below 2 per cent. The largest availability declines were seen in West Toronto, York and East. The average effective rent in the metro recorded its highest pace of growth since the onset of the pandemic, rising by $100 per month. This was the largest increase since 1990.
Sale volumes contracted in 2022 on the heels of rising borrowing costs, mostly in York, Oakville and Old Toronto. The largest decrease was recorded in the $10 million to $20 million category, with total dollar volume traded dipping 38 per cent below the previous year’s level. The average sale price advanced roughly 15 per cent to almost $360,000 per unit in 2022, which was one of the highest growth rates in Canada. The average cap rate remained relatively stable throughout the year, likely due to strong rent growth that boosted operating incomes. Toronto’s long-awaited Eglinton Crosstown LRT is expected to begin operations as early as this summer, improving livability in the surrounding area, and future investment is likely to occur.