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Victoria's rental apartment vacancy rate back to all-time lows as new housing supply lags demand

Victoria's rental housing market is back to near-zero vacancies despite an infusion of purpose-built rental units over the last several years and forecasts predicting lower demand due to COVID-19. Private investment into the rental housing industry purchased by investors and made available to the rental market (through pre-sale condominiums like Nest from Chard Development, pictured) and government programs targeting renters for homeownership are important components of the south Island's rental housing equation.  Chard Development

Victoria's rental apartment vacancy rate back to all-time lows as new housing supply lags demand
Victoria’s rental housing market continues to grapple with supply constraints as strong in-migration, a tight supply of purpose-built inventory and lagging new-build construction contribute to significant pressure on vacancy rates.
The period between 2015 and the first quarter of 2021 saw the largest infusion of purpose-built rental inventory in recent history, according to Citified’s data, which indicates some 7,200 new-build units targeting the entire housing spectrum were delivered over the span of six years. Yet, despite a forecasted buoyancy in housing availability from a delivery rate of over 1,000 new rental homes annually and anticipated lower demand relating to COVID-19, the situation for renters continues to feel much like it did in years prior.
In 2020 the Canada Mortgage and Housing Corporation (CHMC) pegged Victoria’s apartment vacancy rate at 2.2%, representing a rise from 1.0% in 2019 that suggested tangible progress had been made on combating the south Island’s perennial imbalance between housing supply and demand.
What sense of relief there may have been with the release of CMHC’s data, it was short-lived.
“COVID-19’s anticipated impact on Greater Victoria’s rental housing vacancy rates never came to pass over a sustained period,” says Reed Kipp, CEO of Victoria-based rental housing management firm Devon Properties. “Tempered demand we initially saw in mid-2020 eventually transformed into the incredibly tight supply we see today at below a vacancy rate of one percent. That’s without factoring in the anticipated return of thousands of students to college campuses, and despite the thousands of new units added to the rental pool.”
Kipp says vacancy levels across Devon Properties’ inventory of 9,000-units throughout British Columbia have dropped significantly. With 6,000 of those units located in Greater Victoria, Devon Properties’ latest vacancy rates are back near all-time low levels previously experienced in 2016 and 2017. As the region’s largest single manager of rental housing, Devon’s 20% market share and the dearth of homes among its active listings paints a far more nuanced picture of Victoria’s rental industry than the federal government’s initially optimistic overview.
And the reality for renters could get even trickier.
Domestic in-migration to Greater Victoria from all points east is on a tear, according to Statistics Canada, which estimates some 5,000 individuals move from other parts of the country to Victoria each year and account for 90% of annual population growth from Sooke to Sidney.
To put that figure into perspective, at-present there are 3,600 rental apartment units under construction with completion dates through 2024, and an additional 2,000 condominiums, according to Citified's construction tracking. Coupled with townhomes and single-family dwellings, the Capital can anticipate roughly 6,000-to-6,500 units of new housing inventory to materialize through 2024 compared to 25,000 new inhabitants, and that’s not including scenarios involving replacement of aging rental units nearing their end-of-life (which number in the tens of thousands) and sliding per-unit occupancy rates.
Adding further complexity to the situation is the recent surge in real-estate prices and the costly affair of transitioning from renter to homeowner status.
“On average, 65% of renters are aged 35 and younger, which is the most transient demographic when it comes to renters. Of the remaining 35% of renters, many are likely to remain in the rental market for an extended period, and certainly the high cost of real-estate has made it more challenging than ever to leave behind rental housing even among professionals earning relatively high wages,” Kipp says.
For those with the means to pursue homeownership, competition among buyers is at record highs as available inventory lags demand thereby catering to multi-offer scenarios known for driving up asking prices. There is a silver lining, though. Those willing to look long-term can tap into the stable prices of pre-sale offerings and take advantage of multi-year construction periods to accumulate a larger down payment over time. And on that front, multiple pre-sales have returned to Victoria’s core post-pandemic yielding opportunities for renters to plan for homeownership, including one offering with a provincially-backed program specifically aimed at middle-income renters looking to move to homeownership.
It is no surprise, then, given the factors at play, that CMHC has pegged Victoria's five-year average annual rent increases at 6%, with a 3.7% lift between 2019 and 2020 despite a provincially mandated 1.4% increase cap and a rent freeze instituted at the start of the pandemic (indicating rates rose through tenant vacancies and new move-ins).
Circling back to in-migration, Victoria’s relative economic dominance during the COVID-19 era has widely broadcast the local economy's resiliency, its social constructs that handled the threat of COVID-19 exceptionally well, and its stable employment base.
In fact, Victoria made headlines this year and last as a Canadian centre with one of the lowest unemployment rates in the country where some sectors, like educational-resources, grew by 50% over the past year and retail jobs (including wholesale trade) grew by 30% since March of 2020. The most recent figures from Statistics Canada peg unemployment at 5.8%, compared to the provincial rate of 6.9%, making local economic opportunities a beacon for Canadians stepping out of lockdowns with job markets in flux.
Translating the current reality into market opportunities, renters with a desire to pursue homeownership are encouraged to explore avenues with their mortgage broker or lender (these services are available at no cost) to start down the road to ownership, and to learn about government programs available to purchasers within the pre-sale and re-sale markets.
Rising rental rates and the high likelihood of suppressed supply relative to demand also infer opportunity for private real-estate investment in Victoria’s rental industry. With the south Island market facing a sustained shortage of inventory for the foreseeable future, investment in this industry by private landlords is considered stable with growth potential. Deposit interest programs, meanwhile provide additional incentive for pre-sale investment. Individuals wishing to research new-build pre-sale offerings throughout Greater Victoria can use Citified’s comprehensive pre-sale condominium database to view the most complete availability of planned, underway and recently completed projects. Further resources on the local real-estate market are available through the Victoria Real-Estate Board.
To stay up-to-date on the rental housing market in Victoria, follow this discussion on Citified's partner website VibrantVictoria. A resource for housing value data, news and issues relating to Victoria's housing market performance is this thread, and for the latest statistics on the real-estate market, click here. C
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