Toronto
housing expert Ben Myers didn’t waste any time releasing his condo outlook for
2023.
This
morning, Myers – editor and executive vice president of Bullpen Research +
Consulting Inc. – released a condo report on the face to the Greater Toronto
Area’s (GTA) condo market, touching upon everything from balcony size to new
builds and rental rates. Overall, Myers predicts a softer market for the year
ahead, with pricing adjustments and expectations changing in the face of rapid
interest rate increases.
Currently,
Myers says that the average balcony size in new GTA condo projects is currently
72 sq.ft., but their very existence could change. “Bullpen Research &
Consulting is often asked to calculate the value of a balcony, as more new
condo developers would like to get rid of them for several reasons, including
the cost, the negative impact on the look of the building, and the impact they
have on their ability to meet green building standards,” writes Myers on the
significance of balconies.
Myers says
it will be “interesting” to see if more developers choose to eliminate
balconies in their new condo projects in 2023 and 2024 in an effort to reduce
costs. This sentiment is indeed an interesting one, given that the massive
density increase in store for Toronto are going to render outdoor public space
a hot – and increasingly crowded – commodity.
Yet, as
Myers highlights, there are brand-new, purpose-built rental apartments in Toronto
achieving relatively strong rents and absorption with no balconies. However, he
says that it may be “risky” for a pre-construction condo developer to launch
without them unless they are certain the investor community is on board.
The GTA’s
new condo market was incredibly strong from 2016 to 2021, Myers notes, with
record-setting activity continuing into the first quarter of 2021. However,
this was short-lived last year: sales started to decline over the last nine
months thanks to higher rates and a resale price correction.
“Due to the
market uncertainty, the availability of trades, and already full plates, many
developers are delaying their new launches,” writes Myers. “Most of the very
successful new fully expecting discounts and price roll-backs on anything
closing over the next three years.”
Despite the
current climate, Myers says Bullpen believes there is still long-term demand for
pre-construction projects. But developers need to be strategic, he stresses.
“To ensure
that projects are successful, developers must focus on the suite mix, the right
range of offerings, and nailing the price is more important than in previous
years,” write Myers. “Investors will move their focus back to prime locations
with high-profile developers, but don’t expect premium pricing to be achieved b
anyone, regardless of their track record and expertise. Having been burned in
the past, investors will look at the developer’s ability to get financing,
which may make absorption more difficult for lesser-known builders and developers.”
In terms of
numbers, Bullpen is forecasting about 14K to 16K new condo sales in the GTA in
2023, a figure he says that’s down from the typical year of 20k to 22k over the
past five years. According to Myers, condo price growth on an annual basis in
the GTA has been running at 10% to 15% over the past 18 months, and Bullpen
expects that rate to fall to the low single digits by the end of 2023.
Myers also
says that we can expect to see very few luxury and ultra-luxury launches and
fewer premium penthouse offering in investor heavy projects this year,
something that had “crept back into the market” after being “virtually
eliminated” in the wake of the 2008 financial crisis. Lending requirements were
tightened back then, and developers were forced to sell more of their buildings
upfront. This caused them to stop programing larger suites with end users with
deeper pockets who buy property closer to completion, Mayer says.
There is,
however, optimism for developers, investors, and current homeowners. Echoing
the sentiment of some of the GTA’s most prominent developers in a panel
discussion in the fall, Myers says that record levels of immigration expected
should help the housing market. He also says rising condo rental rates will
help the cause.
The GTA’s rental
rates are most certainly back from the dead. Myers points to data that shows
that rent growth took a pause in most municipalities in December. Based on a
sample of condo listing in select municipalities in the Greater Golden
Horseshoe, the average rent dropped slightly last month, falling 1.9% to $2,989
per month. Per-sq.-ft rent fell by 0,8% monthly to 3.67 per square foot in
December.
On a
seasonal basis, however, rent drops aren’t uncommon for the month – so don’t
expect a downward trend on the rent front any time soon. With more and more
would-be homeowners priced out of the market, demand for rentals will likely
remain strong.
Source
By: STOREYS