Zoom calls in the kitchen? Talking over each other’s conference calls around the dining room table? Running a meeting over the sound of your kids fighting? We’ve all been there. Since COVID-19 became an everyday reality, a lot of us switched to working from home, and faced the difficulties that came with it, be it lack of desk space or having to juggle zoom calls with other household members so you can actually participate in a virtual conversation.
A report from PricewaterhouseCoopers earlier this year indicated that 59% of Canadians switched to work from home by July 2020, and a December 2020 survey by the same firm suggested that most CEOs believe working remotely is here for the long run.
We wanted to look at whether these changes have manifested in the rental market across the country. Since Local Logic products are used on approximately 80% of the real estate portals across Canada, we have a good understanding of the renters browsing for homes and their preferences.
Demand gap grows
We measured demand for units organized by number of bedrooms, by looking at how many people are viewing a given listing, on average. With this approach, units that get more views by renters are in higher demand than units that get fewer views.
The graph below shows how that demand has changed throughout the year, compared with January 2020, for 2 groups of rental units: small units (which include 1-2 bedrooms), and larger units (4-5 bedrooms).
Early in the year, demands for both large and small units were quite similar. As the pandemic began to evolve in Canada in March and April of 2020, we saw a decrease in demand, meaning less viewers were looking at possible rental units. This trend continued until early in the summer, when things started to pick up again.
While both small and large units saw increase in demand around the summer, the gap between the two groups was the key difference: standing at around 2% early in the year, it increased over the summer and stayed wide all the way to December.
In Toronto, for example, demand for smaller units remained almost unchanged between January and December of 2020, while demand for 3-bedroom units went up by 13%, and demand for 4-bedroom units was up 23.5%. These demand changes were eventually reflected in pricing as well, sending average monthly leases of 1-bedroom units down 300$, and 4-bedroom units up 150$.
What does this mean?
As we examine the shifts in demand for rental homes of various sizes, it appears to track closely with the course of the pandemic and related lockdowns/guidelines that required Canadians to spend more time at home. While demand for units of any kind cratered in the pandemic’s early stages, prospective renters began searching for new places to live in the summer, after it had become apparent that life was unlikely to return to normal before a vaccine had been developed and administered to a large portion of the population.
Over time, those renters increasingly began to eschew smaller 1-2 bedroom homes in favour of larger 4-5 bedroom homes. These shifts may have been driven by not just pandemic fatigue and broader shifts away from dense urban markets, but the desire for a home office as more workers came to the realization that remote work may be a permanent fixture in their lives.
Other factors driving Canadians toward larger homes may have been an increased desire for home exercise space – a trend evidenced by widespread shortages in weights, exercise bikes and other personal workout equipment – as well as a simple desire for personal space among households unaccustomed to spending long hours together at home.
A second driver to this change in demand is the increased inventory of smaller units. With many cities experiencing a drop in short-term tourist rentals, fewer students moving in, and fewer immigrants coming in, short-term rental units (often small studios or 1-bedroom apartments) are joining the long-term rental market. In the figure below, we can see that change clearly — while small units used to make around 58% of the rental market in Canada in 2019, this figure jumped to nearly 69% in 2020.
The effects of the pandemic on short-term rentals might be temporary, and the end of lockdown measures could bring people into offices again once most of the population has been vaccinated against the virus. However, more reports indicate that work-from-home is not going anywhere. Different surveys and reports suggest that, whether it’s fully remote or hybrid (partially from a central office and partially from home), a significant proportion of the workforce will continue working from a non-office location.
Considering the first signs we already see for the shift in demand, the future of work-from-home and the lower inventory of larger rental units on the market, we see a potential for additional larger units in urban markets in the immediate future. What do you think the future holds for rental units in Canada? Is it time for bigger units in our cities?