There was speculation in Toronto's development industry toward the end of the summer of 2022 that close to 10,000 condo units would be delayed if interest rates continued to rise. Rates have continued to rise, but the sales drop-off appears to have been less than was expected.CARLOS OSORIO/Reuters
As months of slowing sales in new condominiums sees some projects push back their debut into late 2023, other developers are still going full speed ahead.
Todd Cowan of Capital Developments has a somewhat unique insight on this market: Capital ran a successful condo launch right into the teeth of 2022′s sales slowdown, it also occupied a recently finished building across the street from their next project which he is launching sales on now. The 29-storey, 350-unit tower at Yonge and Finch (called Olive Residences) is among the first sales launches of 2023 for Toronto-area developers.
“My contemporaries in the industry were asking me ‘Are you sure you wouldn’t want to delay?’ But we believe at a time like this there are still buyers: they are just very astute and well-healed buyers,” Mr. Cowan said.
The sales environment may not also be as bad as may have been assumed. Toward the end of the summer there was industry speculation that close to 10,000 condo units would be delayed if interest rates continued to rise. Rates continued to rise, but the sales drop-off appears to have been much less severe than expected.
“We’re definitely seeing projects shelved,” said Pauline Lierman, vice-president market research for Zonda Urban. “I’ve spoken to people on the broker side who say we’ve had projects pushed off. There’s ‘shadow shelving,’ where projects are not necessarily going to marketing stage.”
In the end, Ms. Lierman says she can count maybe 1,500 units that had been in the 2022 pipeline that were then pulled, with close to 27,000 units launching for the year. That figure is not final, Ms. Lierman warns, and while it’s not breaking records, it would track close to the average in recent years.
The Olive Residences by Capital Developments is among the first new condo sites in Toronto to launch this year.Capital Developments
What did happen was a slowdown starting after the record-setting first quarter of 2022 (which saw more than 8,000 units launch), where quarter by quarter about 20 per cent fewer sales were recorded. The data isn’t in on the fourth quarter yet, but the trend appears to have continued.
“There were some launches at what I would call ‘B locations’ in the fourth quarter that didn’t work,” Mr. Cowan said. He said that these “B locations” can sometimes negatively impact design choices in a building. “On some sites you’re really hemmed in. … What people are looking for is efficiency: they don’t want a bowling alley – a long corridor from the front door to the kitchen – they want to pay for space that’s usable.”
His own Olive project he thinks of as a “Triple A”: close to transit, in an area that’s not oversaturated with new offerings and well-designed.
Mr. Cowan is also not anticipating any need to offer incentives to move units, a practice that’s growing more widespread in the GTA.
“You do get requests [for incentives] and you have to make a decision. … You have to have a certain resilience in a way, no question about that,” he said.
“In Hamilton, I’ve seen one year off maintenance fees, a one-year rental guarantee, bonuses for brokerages. I have anecdotally heard townhouse sites slash pricing; there was one that may have dropped $300,000,” Ms. Lierman said.
The latest sales figures for resale condos (often an indicator of demand for preconstruction sales) from TRREB show while the number of listings in December, 2022, were down 55 per cent year over year in Toronto, prices went up by 1.5 per cent. In the 905 markets, sales were down 47 per cent on the year and prices were also down 5.2 per cent.
“I would say the absorptions have reached a bottom stage,” said Ms. Lierman, who says in the third quarter of 2022, only about 40 per cent of condos launched for sale were being purchased. She sees signs that things picked up in December, and expects a modest increase in buyer interest as 2023 begins.
Capital’s recent experience also provides some confidence in the market. Its 8 Elm project in downtown Toronto sold more than 600 units (out of a total of 800 in the 69-storey supertall building) in 2022. And as the company’s Azura building (near Olive Residences) went to full occupancy in mid-to-late 2022, Mr. Cowan said he is seeing few signs of distress among buyers.
“Buyers were able to secure mortgages,” Mr. Cowan said, and while there were the usual assignments of units before closing, it was only about 10 per cent of the building.
“There’s an analogy in all asset classes in the world – all of these equity investors are becoming debt investors, going from higher risk tech stocks to bonds – it’s this whole concept of ‘flight to quality,’ " Mr. Cowan said. “My mentor was Peter Munk … and he said you don’t nickel and dime: spend a little money on your lobby, don’t do a concrete floor, because it’s worth it. Believe in the relationships, treat people with respect. And we followed that philosophy.”