Slump in condo
rental market likely short term
Flood
of units expected: CityPlace could
have as many as 1,300 suites ready
this year
Grace
Macaluso
National
Post
Investors
expecting to capitalize on Toronto's
condominium rental market may have
to keep their for-rent signs up
longer.
Demand
for rental condos is cooling as
more tenants opt for home ownership
and the supply of units increases,
analysts say.
"Since
late September, 2001, the market
for residential rentals has turned
much softer, with rates for both
furnished and unfurnished condos
moving lower and taking much longer
to lease out," says Gerry DiLeo,
vice-president of the Rental Lifestyle
Group, a Toronto-based leasing and
property management company.
"The
classified ad sections for residential
rentals in major newspapers have
grown considerably and it's taking
much longer to find a qualified
renter in the current market," he
says.
Ted
Tsiakopoulos, analyst at Canada
Mortgage and Housing Corp. (CMHC),
says the softer market will last
about two years. The vacancy rate
is expected to rise to 1.1% this
year, compared with 0.9% in 2001.
"It is more of a renter's market.
The big rent increases are behind
us."
According
to CMHC, average rent for condo
units is $2.25 to $2.50 a square
foot, depending on location. Mr.
Tsiakopoulos estimates the rental
component of Toronto's condo market
is up 30% from 22% last year.
Mr.
DiLeo says reasons for the slowdown
include economic uncertainty and
the lowest mortgage rates in 40
years. "The latter is prompting
a segment of tenants to enter the
ownership arena, in some cases at
a carrying cost not much higher
than the rent they had been paying,"
he adds.
In
the next few years, as more condo
buildings become ready for occupancy,
there will be a slight but continued
increase in the overall rental supply
in Toronto. Mr. DiLeo cites statistics
from Urbanation, a housing-market
publication, noting 21,000 new condos
will be completed by 2003.
"New
condo investors hoping to maximize
rents for their suites may be in
for a challenging time in the short
term in certain areas of the greater
Toronto area that have a number
of projects moving from the construction
to the occupancy stage," he says.
In
particular, the area between the
theatre district and Harbourfront
is expected to become very competitive,
Mr. DiLeo says. Expect a "flood
of condo rental suites" coming out
of the CityPlace development, which
adjoins SkyDome lands. It will have
about 1,300 units available for
occupancy by the end of this year.
CityPlace is one of the city's largest
complexes, with 7,500 suites in
20 towers when complete.
Marc
Cohen, vice-president of sales and
marketing at Concord Adex, says
investors make up about one-third
of CityPlace buyers. And, "to give
them peace of mind," the developer
is offering a unique service designed
to facilitate leasing and management
of rental units, he says.
Prompton
Real Estate Service Inc., a property
management company, is setting up
an office at CityPlace. It will
offer services in renting and advertising
of units, providing market analysis,
screening prospective tenants and
rent collection. "It's fundamentally
for non-resident buyers and people
who aren't ready to move in yet,"
Mr. Cohen says.
Mr.
DiLeo applauds the CityPlace initiative:
"I see them as a very progressive
developer. They don't have their
heads in the sand and realize a
lot of people are buying as investors."
Despite
rising competition, analysts say
condominiums will remain a solid
long-term investment. "With the
projected increases in our local
population, the demand for quality
condo rentals will continue," Mr.
DiLeo says. "Non-condo rental construction,
while increasing, is still not sufficient
to keep up with future demand."
HOW
TO BE A SUCCESSFUL LANDLORD:
If
you are considering buying a condo
for rental purposes, here are some
tips provided by Gerry DiLeo, vice-president
of Rental Lifestyle Group.
- Objectives
will include maximizing revenues
while protecting your investment.
To succeed in renting the unit quickly,
you must know your target as well
as your competition. Do not be greedy
-- you often have only one chance
to talk price. If your rental rate
is higher than comparable units,
you will lose the prospective tenant.
- Consider
attaching a Web address where photos
of the condo and its views are available.
This saves time for both the renter
and the condo owner or manager.
- It
is imperative to have a comprehensive
lease document in place that reflects
the obligations you, the owner,
have to the condominium corporation.
Tenant screening and selection,
proper insurance, timely revenue
collection, guideline rent increases
and operating expense payments are
some of the caretaking elements
of leasing involved.
Revenue
and value enhancement techniques,
such as providing furnished suites
to the market, can also be considered.
A cost/benefit analysis, which will
include researching competition
and absorption in the geographic
area, should be done before making
any additional investment.
- Before
renting out your condo, you should
be fully aware of the contents of
the declaration, by-laws and rules
that govern the building you have
an interest in. These documents
contain provisions that may place
restrictions or standards with respect
to the occupancy or use of units,
including renting to a third party,
and how and when you can do so.
- A
professional leasing and management
company will deal with answering
and returning calls from prospective
renters, setting up showings and
following up to close the lease
deal. It also will help to ensure
your investment is properly leased
and well maintained, thereby protecting
the value of your asset.
