While developers remain bullish on the long-term prospects of the Greater Toronto Area (GTA) high-rise residential market, land prices for future development are surprisingly flat.
Those are two key findings from the Q1-2021 GTA High-Rise Land Insights Report released by residential market research and advisory firm Bullpen Research & Consulting Inc. and land-use planning and project management firm Batory Management.
“The average price of new condominiums continues to go up, so one would think that the land prices would go up in lockstep,” Bullpen owner and president Ben Myers told RENX.
“But, they really haven’t because of additional construction costs, inflationary pressures on construction and other things that are being built-in and considered, like increases in development charges, inclusionary zoning and some of those other unknowns that are keeping the developers from being overly aggressive.”
The report reviewed 40 land transactions considered appropriate for multifamily developments of four or more storeys. They sold for $116 per-buildable-square-foot on average, up slightly from $112 in the previous quarter.
A couple of high-priced sales in Toronto’s upscale Yorkville neighbourhood pulled the average up.
“Typically, when you have a potential recession, the luxury market is the first one to be hurt by it,” said Myers. “But, we probably have more boutique luxury buildings for sale in the City of Toronto now than we have had at any point in my career.
“The fact that developers are still buying those properties shows belief that there’s still more room for more supply in the luxury market. It tells you how much wealth there is in this city.”
The average property included in the report was 4.2 acres and sold for $23.1 million. The average buildable height was 19 storeys and the average gross floor area was 199,020 square feet.
The report used active development applications where they existed. In other instances, Batory made an assumption as to the potential development project that could be proposed or approved at the site based on neighbourhood precedence and the existing planning framework.
If the project hadn’t actively launched for sale, Bullpen estimated the overall revenue for the project on an average price per-square-foot basis. This estimate was based on market comparables, the projected height, the unit count and other identifiable attributes.
Comparing 416 and 905 area codes
High-density lands sold on a per-buildable-square-foot basis for approximately nine per cent of the projected overall average revenue — 14 per cent in the urban 416 area code and six per cent in the suburban 905 area code.
High-density lands sold for $234 per-buildable-square-foot in the former City of Toronto. The average price was $49 in the 905 area code, which is the same as the average price from January 2018 to March 2021. Breaking things down further, prices were $81 in Scarborough, $71 in North York and $66 in Mississauga.
“We obviously need a lot more housing supply in the region, and if developers can make the numbers work in some of these locations — in Brampton they’re paying $27 per-buildable-square-foot, or Pickering, where it’s $52 per-buildable-square-foot, or York for $40 — those are more reasonable numbers compared to Toronto at $234 per square foot,” said Myers.
“At those land prices, obviously you have to charge a huge price per square foot. My hope is that we’ll continue to see these secondary markets support new development.”
The most expensive areas included Yorkville at $350 per-buildable-square-foot, Lawrence Park at $282 and the Entertainment District at $275. The areas with the lowest average price per-buildable-square-foot included Mount Joy at $15, Brampton at $16 and downtown Oshawa at $21.
Developers will keep launching new condos
Developers continue to reduce unit sizes to achieve the per-square-foot revenue figures they need, even in the outer-suburban markets. Myers expects the land market to remain fairly flat moving forward as he thinks developers will remain cautious about paying top dollar for sites.
A number of new condo projects are expected to launch through the summer and fall in the GTA.
“Despite the fact that rental rates have gone down, investors still feel bullish about the long-term prospects of our market and that people are going to return downtown at the same rate as they have before,” said Myers.
“They also seem to be confident that there will be a condo market in Newmarket, Pickering, Courtice and Bowmanville.”
More developers are looking farther out from Toronto than they might have in the past for high-rise projects, as people are now more willing to live in those areas than pre-pandemic, knowing they may have more flexible options for working from home.
Myers said developers can now sell condo units in high-rise buildings for $800 to $900 per square foot in the 905 area code. While that’s still lower than the $1,400 to $1,500 per square foot in downtown Toronto and the $1,700 to $2,600 price in Yorkville, it’s a number that makes financial sense to build in outlying areas.
“There are now more viable markets than there ever has been before,” said Myers. “Developers are going farther out and going into locations that are off transit. They’re also betting on larger-scale and multi-phased developments.
“When you go into those larger properties, the per-buildable-square-foot value is lower because you’re discounting those future phases.”
Oakville is booming
Myers said new multi-tower projects are being contemplated in Ajax, Pickering, Brampton, Burlington and Oakville. He described Oakville as “bananas” at the moment, with very high demand.
“For the longest time, the mayor was anti-growth and development charges were really high, so a lot of developers ignored the area. But, now a lot of these projects are what I would call almost greenfield. They’re all along Dundas and are launching at $800 or $900 per square foot.
“Investors are saying that Oakville is one of the most highly desirable communities in the GTA, so why wouldn’t we pay these types of prices for that location?”
North Oakville, where condo prices are 25 to 35 per cent lower than in highly desirable downtown Oakville, is driving that market. Myers also expects more high-rise development around the Oakville GO Transit station.