One COVID-Year Later: Everything That’s Happened in Downtown Real Estate
It’s COVID’s world, and we’re all just living in it.
At least, that’s the way it’s felt in Toronto for — officially — one year now. And what a year it has been.
In March 2020, city-dwellers bid their offices farewell, hunkered down in their condos (or, if they were lucky, their ground-level homes with front porches), and hoped that two weeks would flatten the curve.
(Unnecessary update: It didn’t).
Weeks became months, and those months somehow turned into 365 days. Now, a year after the city officially launched its fight against the novel coronavirus, we’re reflecting on how the pandemic has influenced the real estate market.
The downtown sector, specifically, has seen major changes in its real estate scene over the course of the last year. From condo resale to rental to the commercial realm, the ride has been wild.
If you’re keen on reminiscing on how the downtown core has experienced one year of COVID, join us as we walk down memory lane…
Looking Forward (From the Past)
Last winter, local realtors put down their bids on what 2020 would have in store for Toronto real estate. Of course, few peoples’ wildest dreams could have called for what was actually to come. Instead, via educated guesses, realtors forecasted the market wouldn’t change much through the year ahead.
In fact, Munira Ravji, award-winning realtor at TOrealestategroup, told STOREYS at the time: “I don’t think we’re going to see anything different next year from this year.”
What these insiders did suspect, however, was the year would bring with it an increased focus on affordable housing. (This specific insight did turn out to be true, in various capacities.)
What’s more, rentals.ca foresaw the city’s rental rate increasing by 7% through 2020. It was predicted, too, that rising condo prices may pose difficulties for investors hoping to dive into the scene.
Spring Sprung… The Real Estate Industry Did Not
Though monthly data in both January and February suggested a strong sales outlook in 2020 for Toronto, not even the local red-hot real estate market could maintain its pace once COVID reached the city.
In short, on spring’s arrival, the industry took a nosedive.
According to data analyzed and presented by John Pasalis, president of Realosophy Realty, Toronto’s real estate market spent the last half of March falling off a cliff. While sales had been up throughout 2020, so far, by about March 14 they started to decline from somewhere around +50-60% year-over-year, to tumble all the way down to -37% year-over-year.
Indeed, March madness took on new meaning. Downtown, and across the city’s real estate scene en masse, virtual tours were taking place, open houses were all but extinct, and tenants and landlords held their breath when thinking about what the coming months might hold.
Around this time, the City of Toronto announced evictions would be suspended amid the pandemic; hence, renters could leave, but they couldn’t be forced to. And in downtown buildings initiatives were being taken, ranging from hand sanitizer in the lobby to building management calling elderly residents to check on their well-being.
About 75% of April rents were fully paid, according to a survey by the Federation of Rental-Housing Providers (FRPO) however, at the time, expectations for May and beyond were reportedly worse.
Still, according to Altus Group, there were 2,840 condo units sold in March — an increase of 108% year-over-year. (Though that data reportedly reflected pre-lockdown activity.)
According to TRREB, the average rent for a 1-bedroom reached $2,107, down 2.7% compared to April 2019. The average two-bedroom rent was ‘just’ $2,705, down 4.1% during the same time period year-over-year.
For context, in February, the month just before the pandemic hit, rents for one- and two-bedroom condos sat around an average of $2,300 and $2,900, respectively.
Then, in May, Airbnb announced layoffs of nearly 1,900 employees. Read: 25% of the entire company.
‘Twas a Cruel Summer
At the start of the pandemic, the province enacted a temporary ban on all short-term rentals for 28 days or less, except for those provided to health-care professionals and others in need of emergency housing in Toronto.
But the bookings reportedly continued. According to CBC, during the emergency order, the City of Toronto received nearly 180 complaints related to short-term rentals, but didn’t issue a single fine.
Meanwhile, where longer-term (read: permitted) rentals were concerned, Padmapper reported August saw another record month of price declines. Average rent for both a one and two-bedroom in Toronto were down 8.7% and 7% respectively, year-over-year.
In July, tenants and lawyers met at Mayor John Tory’s condo building, responding to the Mayor’s claims that he was powerless to stop mass evictions. He said the issue was a provincial matter, and that he had no control over the Residential Tenancies Act.
Also in July, Toronto-based developer CentreCourt and Parallax Developments hosted the real estate industry’s first in-person condo launch since COVID’s outbreak. The event was planned for over 200 Toronto-area realtors to park their vehicles in front of the big screen at the City View Drive-In, located at 20 Polson Street, for an invitation-only premiere screening of the new downtown condo development’s sales program.
[COVID Was] King of the Fall
Meanwhile, somewhere in the USA, an American referred to Yonge-Dundas square as “Downtown Canada” and the internet went wild. As it tends to do.
Overhead here at home, international property and construction consultancy firm Rider Levett Bucknall’s Q3-2020 North American Crane Index reported Toronto had — at the time — 124 cranes hovering in its skies. This data brought the city into a league of its own for active crane counts; Toronto held the vast sum (30%) of the total cranes in North America. (Throwing in here an obligatory reminder that New York City is also in North America.) Perhaps surprisingly — except to Jeff Bezos — Toronto was followed by Seattle, which accounted for 10%.
Meanwhile, where real estate activity was concerned, a Tale of Two Cities was playing out in Toronto’s autumn. Ground-level home sales soared, but the downtown condo sphere remained quiet. As a result, RE/MAX predicted supply could soon overwhelm consumer demand, leaving both condo prices and rents to decline through the months ahead.
In mid-October, Toronto’s rental vacancy rate rose above 2% for the first time in 10 years. See, though dropping rent prices means renters had an upper hand (over owners and landlords), many were left wondering what they were paying rent for. Long-justified by access to restaurants, bars, museums and transit just outside their (building’s) front door, the cost for downtown condo living might just not be cutting it anymore — even with rent prices down.
For investors, that meant that despite lesser competition in the market, fall was not the time to strike, but instead to watch and wait. And as these hefty financial decisions were being made, North York surpassed Toronto Proper as the priciest city in Canada to rent 1-bedroom.
Right on time for spooky SZN, late October saw an iconic Toronto institution hit the market when the building that housed Yuk Yuk’s comedy club went up for sale. For downtown comedy lovers, this was no laughing matter.
Furthering the Tale of Two Cities narrative, RBC reported the entire country saw strength in its housing market throughout November, except for in one area — downtown condos in large urban areas. The 416-region specifically is described as “both hot and lukewarm,” with sales of single-family homes up 24% year-over-year, while condos sales were “flat.”
Winter Sees a Melting Point
In the commercial sphere, Menkes Developments Ltd. announced that 100 Queens Quay East will be the new home of Richardson Wealth (formerly Richardson GMP Limited). The transaction was described as potentially signifying the beginning of Toronto’s office market recovery.
Though the sector closed the year with a hit of hope as major deals were signed, the downtown office vacancy rate was still reported to have risen 7% in the fourth quarter of 2020.
An era ended through winter, too, as the former site of Wayne Gretzky’s was demolished to make way for condos.
But if it’s been a tough season for every market but one, that one would be the condo market. As if a switch had been flipped, December saw Toronto’s condo activity soar to new heights. Ron Butler, founder of Butler Mortgage told STOREYS that after the vaccine was announced, everything changed.
“Nothing since the start of COVID in March of 2020 has effected the downtown Toronto condo market more than the recent announcement of a vaccine,” he said. “As if by magic, deep concern over falling rents and likely falling values vanished. The fact that there is now a definite timeline for the return to urban living means condo owners and condo investors can choose to wait until the market returns to normal.”
Affirming Butler’s perspective, John Pasalis, President at Realosophy Realty, told STOREYS: “The condo market turned around, literally, in a span of six weeks.”
These insiders placed bets on the sector’s creeping back, and a Market Watch Report released just days later by TRREB backed them up. The data showed condos in the 416 saw 1,703 sales in January; a marked 85.5% increase over the same month last year.
Mark that: two strong months of sales back-to-back, and it couldn’t be denied… the condo market was back in action.
But while the sector’s activity was zooming full-speed ahead, prices hadn’t caught up yet. TRREB’s new report said, in fact, that January’s condo prices showed an 8% decrease year-over-year, reaching $624,886. RBC reported that it was, in fact, those prices laying low that could bolster continued activity in the condo sphere.
If the trend of condo quietness was dying, so too may have been the desire to escape the city. According to a new economics report from CIBC, the desire for escapism — albeit making sense during COVID — is unlikely to stick.
The Clocks Have Sprung Forward… Will Real Estate Do the Same?
Looking to the year ahead, Toronto rents are expected to climb another 4% by the end of 2021. Demand for resale, too, is ever-increasing.
“There’s certainly a marked turnaround in demand for condominium apartments to the point where we have seen very strong sales growth,” said Jason Mercer, Chief Market Analyst for the Toronto Regional Real Estate Board (TRREB).
“But I think what’s even more important to point out is the fact that that sales growth has been outstripping listing growth on a year-over-year basis, which means the market conditions are tightening up again.”
If this trend continues, Mercer explains, the continuation of sales activity surpassing listings growth would lay the foundation for renewed price growth in the downtown condo segment.
“It takes a while, of course, for consumers to react or adapt to changes to market conditions. And added to that is the sort of volatility and uncertainty that we see broadly, not just in the housing market but in the economy, public health, and everything else,” Mercer says.
“But if [the sales over listings trend continues], I think it is possible we start to see renewed price growth in the latter half of this year.”
Meanwhile, walking back into offices — whenever we collectively get to do so — will surely feel at the same time familiar and brand new. Some of that sense will stem from the spaces themselves being reconfigured to meet increased health and safety expectations. However, another important aspect is that all of us will be a little different than we were before.
From the perspective of Jamie Grossman, Managing Principal at Cresa’s Toronto office, these differences mean a rare chance that we shouldn’t take for granted.
“I’m not so sure we were normal before — we were caught in an evolution of what we just always did. There’s a real opportunity now,” he told STOREYS late last year, when reflecting on the return to office.
“This whole thing has brought people together to be more thoughtful about slowing down, and bringing friends and family back into their lives a little bit more, because of how hard it is to work in this city. How do you get back to having such a vibrant, great city, with energy, and so many people succeeding and advancing their lives, but doing it in a more effective and efficient way with less waste and more wellness? Both mentally, and physically.”