Q2-2024 GTA High-Rise Land Insights: Navigating Market Shifts
As the second quarter of 2024 unfolds, the Greater Toronto Area (GTA) high-density land market presents a nuanced landscape. The data reveals a market in transition, shaped by high debt costs, vendor reluctance to adjust prices, and lenders' efforts to manage borrower distress. Despite these challenges, there is a notable increase in transaction activity, with 34 high-density land sales recorded, the highest since Q3-2022.
Key Highlights:
1. Stability in Land Prices: The average price per-buildable-square-foot (pbsf) in the GTA was $78 in Q2-2024, consistent with Q2-2023’s $77 pbsf. However, this stability masks underlying market shifts, particularly the cautious stance of developers and investors in the face of high borrowing costs and declining market demand for new condominium apartments.
2. Regional Disparities: A significant price gap persists between the '416 Area' (City of Toronto) and the '905 Area' (suburban GTA). In the first half of 2024, '416 Area' land prices averaged $109 pbsf, 179% higher than the '905 Area' at $39 pbsf. This disparity highlights the ongoing preference for central locations despite broader market caution.
3. Planning and Pricing Trends: Zoning-approved lands in the former City of Toronto are priced at $185 pbsf in 2024, slightly down from $191 pbsf in 2023. In contrast, pre-application and zoning-submitted lands maintain a consistent price of $130 pbsf, reflecting a stable yet cautious outlook among developers.
4. Market Sentiment and Projections: The report emphasizes the uncertainty surrounding new condominium projects in 2024. Developers are advised to adopt conservative revenue and sales assumptions, with flat pricing and rents expected into 2025. The reduction in equity within investor portfolios and the decline in pre-construction condo investors significantly impact the market, leading to fewer transactions and a more cautious approach from both developers and end-users.
Strategic Considerations for Developers:
- Wait-and-See Approach: The current market conditions suggest a continued period of stagnation, with developers likely to wait for further price adjustments before committing to new projects. The emphasis is on strong balance sheets and the ability to weather ongoing market uncertainty.
- Focus on Long-Term Potential: Despite short-term challenges, capital-rich developers and opportunistic investors remain bullish on the long-term prospects of the GTA market. High immigration rates and a projected undersupply in the housing market over the next two to four years support this optimism.
- Advocacy for Cost Reductions: The report highlights the growing awareness among developers regarding the significant impact of government fees on project feasibility. There is a call for aggressive advocacy to reduce these costs, which account for approximately 30% of the cost of a new condominium apartment in Toronto.
Conclusion:
The Q2-2024 GTA High-Rise Land Insights report underscores a market at a crossroads. While land prices remain stable, the broader market dynamics are driving a cautious approach among developers and investors. The next few quarters will likely see continued market adjustments, with developers positioning themselves strategically for a potential market rebound in the coming years. For those navigating this complex landscape, the key lies in balancing short-term caution with long-term vision, ensuring readiness for opportunities when the market inevitably stabilizes.
Published in collaboration with Bullpen Research & Consulting and Batory Management, providing expert insights on GTA high-rise land trends.