The Greater Toronto Area is seeing an increase of furnished condos hitting the long-term rental market as investors flee Airbnb and related services because of bylaws and travel restrictions that have severely reduced bookings.
In the second quarter, there were 1,877 furnished condo units offered for 12-month leases, an increase of 52 per cent from a year ago, according to new figures from real estate consulting firm Urbanation. Furnished units accounted for 12 per cent of all condo rental listings in the GTA last quarter, along with 21 per cent of the growth in listings compared to a year earlier.
It’s unlikely that every furnished condo was once a short-term rental unit. However, the timing of the spike in furnished listings suggests many short-term units are being converted to longer leases, given the industry is facing turbulence on several fronts.
For one, tourism has been severely restricted because of the COVID-19 pandemic, decimating the market for overnight stays, particularly in the downtown core. Further, under rules now in effect, Toronto only permits short-term rentals in principal residences.
As a result, investors in income properties are forced to find new uses for their units.
“It’s certainly adding more supply” of long-term units, said Urbanation president Shaun Hildebrand. However, “it’s not as if we’ve seen a mass exodus of Airbnbs into the long-term market.”
Some Airbnb hosts may be waiting for travel restrictions to ease, he added, given the potential to earn more from renting on a short-term basis. Others, meanwhile, could be listing condos for sale in a resurgent market.
“You’re still getting pretty close to record prices in the condo market,” Mr. Hildebrand said. “If you can’t rent the units for the amount that you need, you look to sell them, because there seems to be a bit more strength on that side of the market.”
Rental demand has weakened in Toronto, particularly as immigration slows. For furnished condos, the number of signed leases fell 24 per cent in the second quarter, relative to a year ago, and average monthly rents dropped 12.5 per cent to just less than $2,500.
In addition to slower immigration, Mr. Hildebrand said that furnished units command higher prices, which could be weighing on demand. Further, purpose-built apartments in the city are offering more incentives to lure tenants, with many dangling one month of zero rent.
“We haven’t seen incentives like this for a long time,” he said.
Over several years, the Toronto area saw explosive growth of short-term rental units as its long-term market struggled with low vacancies and surging prices. As of last year, more than 5,500 units were booked enough that they were removed from the city’s long-term market, according to a McGill University paper. Airbnb has disputed those findings.
While Toronto now has regulations in place, implementation has been delayed as the city diverts resources during the pandemic. Licensing and registration of short-term rental companies and hosts were slated to begin in the spring, with enforcement to follow in the summer. Neither phase has occurred, and an updated timeline has not been set.
Several Airbnb hosts have told The Globe and Mail they wouldn’t remove units that contravene city bylaws until a registration system was in place.
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