GTA Commercial and New Home Real Estate Markets Rebound in 2019

Altus Group’s recent 2020 GTA Flash Report reveals strong activity in the fourth quarter within the commercial real estate market. Total investment property sales volumes in the GTA increased in 2019 to $22.6 billion, the second highest annual volume recorded since 2000.

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“Investor appetite for commercial properties continues to be strong, resulting in a 7 per cent increase in overall investment property sales in 2019. New home sales fared even better, rebounding by 47 per cent 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.”

The rental apartment sector set another record high for investment volumes with $3.8 billion in sales, up 40 per cent over 2018. This was due in large part to Starlight Investments’ acquisition of a forty-four property, $1.7 billion portfolio in December.

The industrial sector also set another record high, up 31 per cent year-over-year to $4.4 billion. The office sector hit its own new high at $4.1 billion, up 2 per cent 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 per cent and 26 per cent from 2018.

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 the downtown, 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 per cent 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 per cent. Despite the approximately 8 million sq. ft. of new space completed in 2019; most of this new supply was leased before completion.

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 per cent 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 per cent 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.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 yet softened again by late 2019.

Current homeowners also expressed less willingness to buy a home in the next year than in the previous year. Growing uncertainty with respect to the economic and job outlook, along with affordability concerns as prices started to rise again, likely played a role in dampened homebuying intentions.

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