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 fate of 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 increases 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.
New Toronto condos
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 (previous openings and under construction projects), many developers are delaying their new launches,” writes Myers. “Most of the very successful new launches since April came out at relatively reasonable prices -- and investors are now 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 right suite mix, the right range of offerings, and nailing the price is more important than in previous years,” writes Myers. “Investors will move their focus back to prime locations with high-profile developers, but don't expect premium pricing to be achieved by 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 (per sq. foot), 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 offerings in investor-heavy projects this year, something that had “crept back into the market” after being “virtually eliminated” in the wake of the 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 programming larger suites with end users with deeper pockets who buy property closer to completion, Myers says.
There is, however, optimism for developers, investors, and current homeowners (renters, not so much). 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 listings in select municipalities in the Greater Golden Horseshoe, the average rent dropped slightly last month, falling 1.9% to (a still tough-to-swallow for many) $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.