The COVID-19 pandemic is far from over in Canada, but as some parts of life get back to normal there’s one condition tenants in the country’s largest city may be sorry to see go: rental incentives.
A rental incentive could be something as simple as a landlord offering a year of free internet or cable, or even a gift card to Starbucks. But in the past year landlords desperate to fill their buildings have been compelled to offer real money: first month of rent free, or even cash bonuses for moving in.
The combination of work from home and fear of enclosed spaces hit multifamily rental buildings hard in Toronto, lowering rental rates and raising vacancy rates to levels not seen in decades. But as universities begin to offer in-person classes and more businesses have begun reopening offices, the flood of renters returning to the city has caused some of those landlords to pare back on the incentives as competition for units heats up.
“Prepandemic there were no rent incentives,” said Adrian Rocca, chief executive of Fitzrovia Real Estate, one of the largest builders of new purpose-built rental buildings in Toronto. Fitzrovia has $4-billion in rental assets under management and does its own property managing in addition to developing and building new rental. “Through the pandemic the norm for incentives was about two months rent-free plus $500 to $1,000 of cash incentives; they call it the move-in bonus. We also saw an 8-per-cent drop in face rates.” Face rates are the rent that applies once you factor out the incentives.
Mr. Rocca said existing rental buildings have been offering incentives on an apartment-by-apartment basis throughout the pandemic, but where they really took off is in the lease-up phase of a new building, where rental managers try to sign up tenants to fill an empty tower. In 2021, Fitzrovia had two new buildings open and in the case of The Waverly, a 166-apartment, 16-storey building at College and Spadina (which replaced the old Silver Dollar Room lounge) – began leasing on Feb. 4, but four months in, the company removed all its incentives with about 20 units still to lease, and recently signed eight more leases without any cash incentives. The building is now 92-per-cent leased.
“We had one-month rent free, and all together we had $2,700 cash incentives; free internet was in there. Now we’re just offering Internet as an ongoing part of the program,” he said.
According to Urbanation Inc., a real estate research firm, in the second quarter of 2021 the most popular incentive being offered in purpose-built rental buildings was one-month rent free (52 per cent) followed by 25 per cent offering two-months rent. The other incentives included another 12 per cent offering a move-in bonus and then smaller single-digit offerings of three-months rent, six months parking, gift cards or gym memberships.
Some in the industry suggest that while cash bonuses may be fading away as the rental market gets pricier, not all incentives are strictly monetary.
“We offered a one-month rent free incentive, because we recognized COVID brought on challenging circumstances, and we wanted to offset moving costs,” said Chrystal LeBlanc, director of Residential Strategic Marketing with rental housing owner BentallGreenOak. “I think we’re going to see incentives dial back, but we’re going to continue to see lifestyle incentives.”
BentallGreenOak is currently running a lease-up at a new building branded Novus in Liberty Village, a 579-apartment tower that began preleasing in June and has signed up tenants for about 20 per cent of its units thus far.
In Liberty Village, a community filled with condominium apartments often owned by investors, BentallGreenOak is also spending a lot of time educating prospective tenants on things such as security of tenure that’s typical of a purpose-built rental.
That said, Novus’s rents are above current market with a one-bedroom running between $2,190 and $2,550 (according to services such as Padmapper.com, Liberty Village one bedrooms average $1,950) and a three bedroom starting at $4,910 and hitting as high as $7,500 (Padmapper average: $4,700). And because it’s a building completed after 2018, the rates won’t be subject to Ontario’s rent controls, even if a tenant won’t get a potentially spurious “own-use” or renovation eviction that’s become all-too common among investor-owned apartments.
BentallGreenOak constructed the lifestyle parts of its incentive packages as a set of bonuses worth $1,000, that renters could choose between. Some packages offer additional cash for moving expenses and gift cards for furniture retailers Article and EQ3; another offers eight sessions with a personal fitness trainer and a Lululemon gift card; another was all about the local restaurants with gift cards for Brodflour bakery, Kibo sushi and Chang Mai Thai food. BentallGreenOak is also offering to plant a tree for each new lease, and is running a draw to give away a Tesla electric car.
Ms. LeBlanc says the one-month-free promotion will continue for now, but says the cash incentive on its own is too transactional an approach to leasing up Novus. “We don’t want to just put bodies in suites, we want a community. When we first put out one- or two-month-free rent, it may open a door, but that’s not why someone’s going to choose to stay at your community,” she said.
For some builders of new rental, there was never going to be any cash incentive needed. At least, that’s the view of Bryan Levy, CEO of residential building company DBS Developments and CFO at the parent company and asset manager Preston Group. Preston faced construction delays as it worked on its new 20-storey purpose-built rental building – called 2Fifteen Lonsdale – in Toronto’s exclusive Forest Hill neighbourhood and is planning to launch the lease-up campaign in September with occupancy planned for early 2022.
“For our building we’re not planning on coming out to market with any incentives at all, we will not require any incentives on the initial lease-up,” he said. “Our other properties, are different stories. Over the pandemic we’ve offered certain incentives. Now we’re seeing every day it’s changing, whatever incentives are still there I don’t think it’s going to last too much longer.”
For Mr. Levy, Lonsdale is a prestige property not just because of its proximity to schools like Upper Canada College, but the materials and finishes are a fit for a neighbourhood known for expensive custom houses. Suites will feature appliances from high-end brands such as Gaggenau, Thermador and Bosch, custom-designed kitchens from Wise-Nadal (two-bedroom units will get a wine fridge thrown in) and natural stone and quartz in kitchens, bathrooms and fireplaces. The building has a porter, a concierge and custom app for managing tenant relations – from maintenance requests to booking such amenities as the roof-top lounge, the party room with chef’s kitchen or the gym kitted out with Peloton bikes. Even in construction, they are pushing their chips in with floor-to-ceiling windows, large balconies for every suite and even a specialized brick façade that’s never been used in a Toronto high-rise.
Manufactured by the Broager Denmark-based Petersen Tegl Company, the K91 Kolumba brick is extra-long so fewer are needed in construction and can be seen in Toronto on the Drake Hotel. Mr. Levy toured the factory with the company’s seventh-generation family ownership and came away deeply impressed. “It’s a beautiful brick, but most developers would think we’re crazy for how much we spent. We’re north of $7 Canadian on a brick; a typical normal brick is a couple bucks. As it begins to go up [on the building] now people are stopping to look,” he said.
But even for buildings without as much cachet as Lonsdale, as the effects of the pandemic fade and rental incentives disappear with it Mr. Rocca doesn’t see much chance of them coming back in a city that has been in such high demand to live in for so long.
“It was such a tight market, we’ve been at 2 per cent structural vacancy for 25 years,” he said.
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