[The Condo Observer]

Downtown Condo Boom Over?

Yes, there are signs of life in economy. We are about to land at the bottom, or perhaps have already arrived. The pent up demand from a dreary winter, coupled with historically low interest rates have caused an unexpected blip in real estate resales.

But my gut feeling is that the grand era of new condo construction downtown is pretty much over. Projects that were shelved for repackaging might come to market, but it will be years before they are built. The rules of financing new projects have changed, indeed they are now re-writing that book for both development financing, as well as consumer financing. So its not like we are going to pick up where we left off pre fall 2008.

Resale prices are so much more attractive than new construction. And investors planning to flip now have to rent or sell and bail, probably breaking even. Entry level condos in the core are 300K for 500 sq ft in non-premium locations. Not attractive to investors even at these interest rates. An investor needs to put out 100K cash at a minimum, to bring the mortgage down to break even levels. So the investor-driven segment of the market might shift to resale units or other peripheral markets outside of the core. North York, Lakeshore and Mississauga are all looking better in terms of the numbers.

The stock of new downtown condos is therefore precious. This is the stock that we are going to be with for a long time.

 

[Woodbridge_Heights]

Interesting analysis, certainly I think there is a buildup of condo units in the city now that is going to take a while to be 'filled in' so to speak. Most likely, now that we've got an additional 100 to half a million people now living in the city core, the next phase of this city's growth may be in the commercial office sector. Both to serve these new residents and to provide jobs for them.

Outside of some major improvements to, for example transit (drl I'm looking at you), we won't likely see the kind of residential investment in the core that we have seen for the past 10 years.

That's just my opinion, I'm no expert.

 

[The Condo Observer]

Totally agreed. The retailing and other service sectors need to catch up with the intense residential development. We might see retrofitting of existing commercial buildings , both high and low rise, to meet the demand.

I am thinking specifcally now about the Front Street to Lakeshore catchment area - We have Festival Tower, M5v, Charlie, Fly, All of Citygate, West Harbour and its neighbours on Fleet Street.

Restaurants, Cleaners, Grocery stores, etc etc.

 

[Eug]

Not over by any means. Just stalled.

 

[W. K. Lis]

They will start building low-rise condos along the Transit City lines as soon as the shovels start digging along them. The high-rise condos are waiting for any new HRT subway lines coming up (Yonge & Spadina extensions, DRL).

 

[unimaginative2]

That's what the city would like, but we've seen pretty clearly that low-rise condos are generally not very profitable. We're going to need serious zoning, building code, and tax changes before building retail strips with a few floors of residential on top becomes profitable.

 

[interchange42]

I'm with Eug - this is just a breather we're in right now. Downtown land in this city is never going to get any less valuable (barring nuclear winter or similar), and living downtown is not going to become any less attractive anytime soon.

In terms of new jobs for new residents in the core, there are 5 new office complexes in various stages of completion at the moment, (BAC, BRC, Telus, MLS, PwC) and new retail opportunities in complexes and along roads all over the place. This city is not so simply put together that residential construction would need to stop for a while for other sectors to catch up.

The only thing that's really lagging downtown is new transportation infrastructure (DRL I'm looking at you too!).

...so no, we're not ready to declare the grand era of condo building over. We'd need to have some reasons to declare it so.

42

 

[Eug]

That's what the city would like, but we've seen pretty clearly that low-rise condos are generally not very profitable. We're going to need serious zoning, building code, and tax changes before building retail strips with a few floors of residential on top becomes profitable.

From what I've seen, the city likes everything: low rise and mid-rise and even high-rise condos. And by low rise, I mean more than 5 floors.

For some avenue studies for example, the city's own planners were pushing the public to consider mid-rise (or higher) buildings in areas where only 2-story buildings exist now.

 

[dt_toronto_geek]

Speaking of Toronto specifically, I think it's going to be a while before confidence returns to a pre-2008 level and then there is a considerable amount of catching up to do with the supply of empty units that are on the market, and those which will come to market over the next two-three years. My uneducated guess is that the next cycle will begin in about 5-6 years, providing the US doesn't completely collapse.

 

[unimaginative2]

From what I've seen, the city likes everything: low rise and mid-rise and even high-rise condos. And by low rise, I mean more than 5 floors.

For some avenue studies for example, the city's own planners were pushing the public to consider mid-rise (or higher) buildings in areas where only 2-story buildings exist now.

The problem with the low-rise buildings is that they're often even more disruptive to the urban fabric than towers, since they all seem to be a full block long. All of our successful streets have relatively narrow, deep buildings. We haven't seemed to be able to figure out how to make a successful pedestrian-oriented retail street with wide buildings.

 

[Eug]

Speaking of Toronto specifically, I think it's going to be a while before confidence returns to a pre-2008 level and then there is a considerable amount of catching up to do with the supply of empty units that are on the market, and those which will come to market over the next two-three years. My uneducated guess is that the next cycle will begin in about 5-6 years, providing the US doesn't completely collapse.

That seems reasonable, although I'd expect things to start to turn around earlier.

The problem with the low-rise buildings is that they're often even more disruptive to the urban fabric than towers, since they all seem to be a full block long. All of our successful streets have relatively narrow, deep buildings. We haven't seemed to be able to figure out how to make a successful pedestrian-oriented retail street with wide buildings.

OK, I see what you mean. However, is that a cause and effect relationship? Many successful streets as you describe were successful because of their location. I suspect some the unsuccessful streets would probably have been unsuccessful with narrow buildings as well.