GTA commercial and new home markets rebound in 2019

GTA commercial and new home markets rebound in 2019

GTA commercial and new home markets rebound in 2019

Altus Group Limited has released its 2020 GTA Flash Report, which provides a comprehensive review of the real estate market in the Greater Toronto Area (GTA) based on 2019 Altus Group data. The report highlights the performance of investment property sales volumes, land markets, commercial leasing and the new home sectors in the GTA.

“Investor appetite for commercial properties continues to be strong, resulting in a 7% increase in overall investment property sales in 2019. New home sales fared even better, rebounding by 47% overall as both end-users and investors showed renewed interest,” said Patricia Arsenault, Executive Vice President, Data Solutions at Altus Group. “2020 promises to be another solid year for new home sales and commercial property investment in the GTA, although uncertainty with respect to the global economy and geopolitical risk, combined with dampened homebuying intentions, could cut the recovery short.”

Home Buying Intentions

Fewer GTA households are planning to buy homes in 2020, according to Altus Group’s FIRM Survey conducted in late 2019. Homebuying intentions among renters – the primary pool for potential first-time buyers – had shown some recovery in late 2018 but it had softened again by late 2019. Current homeowners also expressed less willingness to buy a home within the next year than in the previous year. Dampened homebuying intentions have likely been caused by growing uncertainty with respect to the economic and job outlook, along with affordability concerns as prices started to rise again.

The desire for homeownership still remains strong among renters under 45 years of age, however, with 1 in 3 saying they are still saving for a down payment on a home and only about 1 in 9 indicating they prefer the renter lifestyle.

2019 GTA New Home Market Highlights

2019 was a rebound year for total new home sales in the GTA after reaching a 22-year low in 2018. Aided by lower mortgage interest rates and the release of some pent-up demand, total new home sales bounced back to just under 36,500 units, near the 10-year average.

New single-family home sales, with 9,523 detached, linked and semi-detached houses and townhouses (excluding stacked townhouses) sold, were 2.5 times the level of 2018. While the downward trend in new single-family home sales came to an end in 2019, sales remained well below the 10-year average. The benchmark price of a new single-family home in the GTA finished 2019 at $1.09 million, about 17% below the peak reached in July 2017. Increased product availability in more affordable areas has been a contributor to the price moderation.

Condominium apartment sales accounted for 26,948 new home sales, the third highest level ever. The share of new condominium apartment sales in 2019 that occurred within the City of Toronto fell to 54% as activity grew in the 905 regions. The benchmark price of a new GTA condominium apartment reached an all-time high, breaking through the $900,000 threshold for the first time ever.

The gap in prices between new single-family homes and new condominium apartments has narrowed significantly since early 2017, which has helped single-family homes regain some of the relative attractiveness lost in the 2015 to mid-2017 period.

2019 GTA Commercial Real Estate Market Highlights

Boosted by strong activity in Q4, total investment property sales volumes in the GTA increased in 2019 to $22.6 billion, the second highest annual volume recorded since Altus Group started tracking the market in 2000.

The rental apartment sector was the star performer again in 2019, setting another record high for investment volumes with $3.8 billion in sales, up 40% over 2018. This was due in large part to Starlight Investments’ acquisition of a 44-property, $1.7 billion portfolio in December. The industrial sector also set another record high, up 31% year-over-year to $4.4 billion. The office sector hit its own new high at $4.1 billion, up 2% from the record set in 2018.

The residential land market, however, continued to see a decline in total investment sales in 2019, down by $716 million from 2018. The retail and hotel sectors also each saw a second consecutive year of declining investment, down 6% and 26% from 2018 respectively.

In the office market, only approximately 1 million sq. ft. of new office space was completed in the GTA in 2019. Strong office space demand in downtown Toronto, combined with minimal new supply delivered last year, pulled the overall vacancy rate down to the lowest level recorded in Altus Group’s tracking history. Nearly 10 million sq. ft. of new office supply is currently under construction in the downtown area alone. Despite the anticipated new supply, almost 75% of the space is already pre-leased, providing very little relief for tenants seeking new or expansion space.

The industrial market also continues to struggle with a low availability rate of just under 1.5%. Despite the approximately 8 million sq. ft. of new space completed in 2019, most of this new supply was leased before completion. The 14.7 million sq. ft. of industrial space currently under construction should help to somewhat ease the tight market conditions.

Overall year-over-year percentage change in relative performance by market activity in the GTA:

Market activity

Year-over-year % change in activity levels

Investment Transaction $ Volumes, Improved Properties

16%

Investment Transaction $ Volumes, Land

-6%

Retail Property Transactions $ Volumes

-6%

Industrial Property Transactions $ Volumes

31%

Hotel Property Transactions $ Volumes

-26%

Office Property Transactions $ Volumes

2%

Apartment Property Transactions $ Volumes

40%

New Single-Family Home Sales

157%

New Condominium Apartment Sales

27%