A new breed of high-end rental apartments is entering Toronto’s housing market in volumes never seen before, just as there are warning signs that new rental starts are slowing again.
According to real estate analysis company Urbanation Inc., there are almost as many purpose-built rental apartments under construction in the Toronto area in the first quarter of 2023 (20,270) than were completed in the region during two decade period between 1980 and 1999 (20,514). But these new apartments are for the most part nothing like the city’s existing stock of high-density rental towers that were built mainly between the 1960s and 70s, and they charge some of the highest rents in the region.
“It’s an upgraded rental living experience compared to a typical condo rental,” said Shaun Hildebrand, president of Urbanation. “They are bigger and there’s more attention paid to a unit.”
In recent decades almost all the new rental units built in Toronto were condominium apartments that individual investors and owners rented out to tenants. And while the aging purpose-built rental stock in the city can no longer compete in terms of amenities, those who manage the new purpose-built rentals would prefer if no one referred to their buildings as “condo-like.”
“A lot of folks think an apartment building is a condo building that’s rented. That’s not the case,” said Rob Martin, senior vice-president at Rhapsody Property Management Services. Rhapsody is a property management company that manages 16 rental complexes with about 7,000 apartments. For Mr. Martin, a Canadian who worked in the U.S. for years before returning home, it’s been a process for Canadian condo developers to relearn how to design dedicated rental buildings.
There are fewer apartments available to rent in Canada than at any time since 2001
“We have a long list of stuff we give our partners when we first meet; the 75-80 things we tell them to look for,” Mr. Martin said. The list includes everything from how to locate plumbing (drains near washing machines in every unit to help avert floods, not to mention easy-to-access shut-off valves) to what shape the apartments should be.
“One of the first things I tell a developer? The dens. Just remove them all. Their heads almost blow off because as you know, in Toronto “dens” are – and I’m using the word very loosely here – “dens” are everywhere,” Mr. Martin said. The request requires a mental shift because semi-functional extra space is desirable to investors who see surplus square footage as an increase to the value of their investment. But renters are different: they don’t want to pay more for a half-room that is neither office space, a bedroom or useful storage.
One of Rhapsody’s latest lease-up efforts is underway for the newly completed Residences at The Well, part of a massive redevelopment on the western edge of the downtown core. Mr. Martin offers a tour of the building that highlights some of the ways the building differs from a condominium. For example, the hallways are wider than a typical condo, sacrificing a few inches in each unit for better turning axes when bringing in furniture.
Inside apartments that have two bathrooms, the bathtub is never in the ensuite, unlike with most condos. The tub is in a separate bathroom to be family friendly: whether it’s kids or dogs. Rhapsody finds people don’t always want to do bath-time in their primary bedroom.
Electrical outlets do not feature condo-common built-in tech connections like USB, partly because tech infrastructure can be hard to future proof. “You never want to do too much of that in an apartment,” said Mr. Martin, because when a major tech company like Apple switches to USB-C (as it recently has) suddenly every outlet with boring old USB is in need of a costly upgrade.
Where possible, Rhapsody likes to add a wine fridge to the kitchen. “We’re messaging that they have the ability to socialize because we want a very social community,” Mr. Martin said. “We think it speaks to the relaxed nature of coming home after a long day and opening a bottle of wine with friends.”
Rhapsody encourages social programming in the building with things like guided exercise programs and boot camps residents can sign up for through local fitness provider Benchmark Group. All of this communication comes by way of an app the company makes accessible to residents that helps them manage everything from food deliveries to maintenance requests. For instance, they have a policy that if you need something hung on a wall one of their staff will come do it (not least because they know where it’s safe to drill holes in the walls).
This attention to detail doesn’t come cheap, but Rhapsody’s website for The Well also provides detailed pricing and floorplan options so there’s no guesswork about what’s available. The monthly rental cost for a studio apartment might start at $2,400 for a 479 square foot unit; some apartments with a separated single bedroom start at $2,600 a month for 517 square feet; two-bedroom apartments with two baths start at $3,300 a month for about 750 square feet; and very large three-bedroom apartments start under $5,000 but can rise as high as $7,800 a month on sizes between 1,200 and 1,460 square feet.
According to Urbanation’s figures, new purpose-built rental apartments are renting at a premium to newly built condo apartments – as much as a $300 a month average difference so far this year. The average condo rent in the city is now at about $3.81 per square foot and The Well building is likely to grab rents between $4 and $5 per square foot.
According to data collected by Rentals.ca, in April the average monthly rent landlords obtained for a one-bedroom apartment in Toronto climbed 20.5 per cent from April, 2022 to reach $2,526. A two-bedroom apartment is fetching $3,290 on average – that’s up 18 per cent year over year.
But just as he doesn’t like “condo-like” Mr. Martin also doesn’t like to describe these apartments as “luxury,” despite them renting near the top end of the market.
“It’s not a word we like to use because it implies that it somehow it’s not attainable for everybody,” he said.
“Condos are increasingly occupied by students. Newer purpose-built rentals are catering to higher earning professionals,” Mr. Hildebrand said.
However, Mr. Hildebrand’s tracking shows that as interest rates began to climb in spring 2022, new purpose-built rental starts were cut in half from about 7,800 starts per quarter to less than 3,000 in the last two quarters. He calculates there’s still close to 115,000 planned units in the purpose-built pipeline, but when or if they might arrive is unknown.