With condo towers rising at a fevered pace across the face of the Greater Toronto Area, it’s a fair question to wonder what the building boom has and will mean for the apartment market.
So far all that new condo stock has affected rents of apartments very little. “It was surprising because we were expecting to see a little fluctuation of vacancy rates and we were expecting to see rents actually flatten out,” said Jasmine Cracknell, a Senior Associate, with Barry Lyon Consultants Ltd. of Toronto. “The purpose-built rental vacancies actually declined, meaning more people went into purpose-built, the older [buildings] and the condo (vacancies) only went up a little bit, it is still only 2%.
Cracknell, who is speaking about the evolution of the condo and apartment markets at the Canadian Apartment Investment Conference (CAIC) in Toronto on September 14, attributes the robust apartment market to the steady influx of new arrivals to the GTA, estimated to average around 100,000 people annually, as well as a squeeze on affordability caused by the uninterrupted march of housing prices and tightening mortgage rules put in place by Ottawa. “Perhaps it isn’t as affordable to get into home ownership anymore. Now the deposit requirements are pretty stringent, they make it very difficult for a first-time home buyer to get into the market.”
That is backed up by a recent CMHC report which found that tighter federal rules on mortgages (reducing the the maximum amortization period to 30 years and cut the maximum amount Canadians can borrow to 85% of the home’s value) has changed consumer behaviour. Following the changes this year, refinancing activity fell by nearly 40%, and 10 % fewer Canadians bought mortgage insurance, and the level was five per cent lower than sales before the changes came into effect.
New apartment buildings in the GTA are few and far between because of the long payback (12 to 15 years) compared to condo construction. Cracknell does not see a condo glut in the GTA market developing any time soon, noting that there is a healthy market for new and established properties. “The resale market has been phenomenal, it has been outstripping the new sale market, which is unbelievable.”
Sales figures compiled by the Toronto Real Estate Board back that up. For the month of July 2011, condo apartment sales rose 30% across the GTA to 1,986 units while the average price rose 8% to $332,354 from the prior year.
What is changing is units are getting smaller in an effort to maintain affordability, says Cracknell. “We are seeing unit sizes continuing to shrink but on the other side we are getting more and more efficient in the use of that space. It just seems like 600 square feet must be so small but when you look at a floorplate, it is so efficient. There is really no wasted space in these condos.”
The profusion of construction cranes across the GTA has also forced builders to spend more time and attention on design with regard to their buildings and the hiring of well-known “Star-chitects” to give developments standout features, particularly in the downtown core. That is seen in improved pubic art which is better integrated in the city and improved outdoor space.
Cracknell noted with approval more retail and public facilities such as libraries being integrated into new developments, not just appearing after the fact as had been the case in the past with most new condo development in the GTA.
“The big thing that is starting to happen and we think that really needs to continue is to not create these standalone buildings that have this kind of secondary retail at the base. Maple Leaf Square is a great example, you are seeing all sorts of grocery stores coming into the city.”
The condo market (and select apartment markets) are also being supported by new office tower projects as developers are making an effort to keep work and home geographically close. “Considering we have already absorbed 200 floors of Class A space and we are getting more, definitely two more. They are coming in because the condos have created all this young, well-educated population base so the employers are moving closer to where these condos are.”
While the GTA represents North America’s largest condo market, it remains “very” affordable, she notes. A condo unit in a comparable building in Vancouver would sell for $1400 a sq. foot versus about $500 per sq. ft. in Toronto, she says. “That is how we do these sales volumes, because we are affordable.”
The Vancouver-Toronto price differential is not expected to narrow as the West Coast city is geographically constrained by the sea, parks and mountains. “They really can’t go anywhere else. Whereas here we are opening up new [land] all the time like the West Donlands and Regent Park. We do have lands that are still available or are going to be available ” for development.
Vancouver-based developer Bucci Developments Ltd. said recently that it has “totally shut down” its operations there for an indefinite period to focus on the Calgary condo market which the company said has failed to keep up with a boom in new office space.