The topic of renting isn’t nearly as sexy when compared to million-dollar-homes, multiple offers, and bidding wars.
But wait……there are bidding wars on rentals, haven’t you heard?
No joke, no exaggeration – there are full-on bidding wars happening in the Toronto rental market.
So today, let me tell you two stories I heard from my colleagues in the past few weeks, and we’ll go over some slides from Urbanation.ca that tell us what’s going on in the rental market.
Rentals are not my forte. No longer, at least.
I did a lot of rentals when I was just getting into the business; that’s how it works, after all.
I do a lot of rentals on the listing side for my investor clients, but even then, I often tell them that they can use Craigslist and Kijiji to find a renter if they’re willing to put 10-12 hours of work into it, and the renters without representation (ie. no agent, not looking on MLS) are often misguided, and always seem to pay more.
For lessees, I do the odd rental now and again for past clients, but I have nowhere near the stories that some of the kids in my office have.
I’m constantly told, “You have no idea what the rental market is like,” and it’s often coming from a very frustrated agent who is making his or her third or fourth offer with a client. And yes, you read that right – third or fourth offer, to lease.
We hear a lot about that in the market for sale, but it’s happening out there for leases too.
I enjoy the stories, not because I’m a sadist, since all the stories are of the tough-luck variety, but because I want to know what’s going on.
So here are three recent ones that tell a pretty accurate tale…
A young agent in my office has been looking with another young 20-something client for a “lofty unit,” which of course means, in his or her head, the tenant wants that beautiful brick and beam unit that we see in the movies and on TV.
The tenant has lost on two units of a similar variety over the last few weeks, but he’s not exactly out on the street without a lease agreement in hand, you know – because he lives at home.
That’s the case of a lot of these tough-luck renters, who hear the horror stories about what it’s like trying to buy a house or condo in this market, and then find out it’s the same when it comes to leasing.
So a new unit comes out last week in a loft building, and the agent jumps on the phone and convinces his client to go see the unit on his lunch break.
Great move. I love the aggressive decision, and that should be rewarded, but isn’t always, in this market.
By 1:00pm, the agent was back at the office, and had an Offer to Lease signed by the client, and emailed to the listing agent within the hour.
The offer was set to expire at 11:59pm, which is fair, given you can’t really hold a gun to a listing agent and/or landlord’s head in this market, but it also means there are several hours whereby other offers can come in.
That happened to be the case, in the end, unfortunately.
By 7:30pm that night, the listing agent called the young agent from my office and told him that there were six offers on the property – three of them from tenants who were offering sight-unseen.
That means two other would-be tenants rushed over either on their lunch or after work, and put together offers as my colleague’s client had done. But they were competing with those who had completely thrown caution to the wind, and were willing to lease the condo just by looking at the photos.
At $1,700 per month, for a 1-bed, 1-bath, with no parking, the bidding war was in full flight.
The listing agent, who must have felt like a Triple-AAA baseball player getting ready for his call-up to the majors, was working the phones, and working the agents and their clients, and in the end, the unit leased for $1,900 per month. The “winning” tenant also provided four months’ rent up front.
I told the agent, “There’s nothing you can do there,” but then the obvious popped into my head: “I suppose he could have told his client to offer $1,950 per month.”
That’s crazy though, right?
Or is it the same mindset as buying a home?
My second story is even crazier.
It’s not as long, and doesn’t have the panache of a sexy loft, or the jaw-dropping “lease-to-list” ratio of a $1,700 condo going for $1,900, but it’s far more telling of where the rental market is.
Another agent in my office was looking to lease a property for her client, and like the unit above, it was brand new on the market, and relatively sought-after.
She showed the unit very quickly, as did the agent in my first story, and rushed to put together an offer.
She called the listing agent to ask, “If I send this over with a four-hour irrevocable, is that enough time for you to look at it?”
And that’s when the incredible happened.
The agent said, “We won’t look at it tonight. We’re not looking at offers until tomorrow.”
Well THERE you go!
It’s official, folks.
We’re holding back offers……..on RENTALS!
Need you hear any more about the rental market than that?
To have six offers on rental, that’s nothing new.
To pay $200 over the list price for a 1-bedroom, that’s nothing new either.
But an “offer night” for rentals? Refusing to look at offers until a pre-determined day and time?
I think the real estate market has reached a new level. No question.
Now as promised, here are a few more slides from Urbanation that back up a lot of what we’re already saying.
Here’s the lease activity since 2010, which shows that condo leases have doubled in only five years:
This is interesting.
Even though supply has risen, the lease-to-listing ratios are rising:
And as you might expect to follow, the average rent per square foot is increasing – almost 10% this year, which is only half of the 20-something-percent increase in the average home price, but still shows you’re not getting a “deal” on the rental market:
This is also quite interesting, and perhaps a whole other topic – purpose-built rental development is skyrocketing.
You would think that developers want to continue building condos – get in, get out, make money.
That attitude has been a major driver of the condo boom in the past decade, but now it seems developers are turning back to rentals.
I think the major driver behind that trend is the demand from pension funds and other institutions that are extremely long-term focused, who want to own a rental building, rather than a slew of condominiums.
Think back to failed condo developments like “The Selby” which was launched and sold as a condo, but eventually converted to apartments. Same story for “King’s Club,” the infamous debacle by now-bankrupt Urbancorp.
Here are few of the new purpose-built rentals:
And last but not least, the number of rental apartment units has dropped off dramatically, but the price, of course, has continued to rise:
If you’re reading this, and you have a crazy rental story of your own, please share!