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The Toronto real estate market continues to experience low levels of activity, as interest rate hikes, price drops, and policy uncertainty continued in November of 2022.
In January 2022, UrbanToronto Pro highlighted an impressive number of November 2021 applications for development to the City of Toronto. Between the end-of-year rush of trying to beat increased development charges and other fee increases, as well as the overall sense of frenzy in the market, developers were very eager to submit proposals. Fast-forward to November 2022 and an entirely different narrative is unfolding in Toronto’s development industry: only 9 applications were received, compared to 49 just a year ago—a significant decrease (-79%). Although 2021 was an anomaly in terms of applications, November 2022 was a low month for the number of applications historically as well. The average number of proposals from 2017-2020 was 17 applications, 70% higher than this year.
In November 2022, developers proposed 3.3 million square feet of total gross floor area (GFA) across all sectors; 76% of which was residential GFA, 22% was institutional GFA, and 2% commercial GFA. Of the commercial GFA, all of it was retail: there was no office component to any of the proposals this year. Developers also proposed only 3,369 dwelling units; however, the residential GFA per unit both this year and last year was at 737 square feet. This is in-line with the median ratio proposed this year, indicating a plateau in unit sizes. As rising interest rates continue to make borrowing more expensive for home buyers and developers, this implies that developers are increasingly thinking about building larger units in order to cover the cost of increased debt.
The total GFA proposed during November 2022 also dropped significantly from 19.3 million square feet in 2021 to 3.3 million in 2022; an 82% decrease! Similarly, the size of site area decreased substantially from 4.2 million sf in 2021 to 1.5 million sf in 2022; representing almost two thirds (-63%) less than the previous year's figure! The same trend goes for FSI which saw its value drop from 4.59 FSI/applications approved last year to 2.22 FSI/applications approved this year; over half (-53%) less than what was reported back then! However, at 126%, this is the first time we are reporting a parking to dwelling unit ratio of above 100%. This is largely driven by the new proposal for the Therme Spa/West Island at Ontario Place. Excluding this project, the ratio drops to 42%.
There was also a notable decrease in floor space index (FSI) from 4.59 last year to 2.22 this year; once again, this is due to the massive (but low-FSI) Ontario Place proposal. Excluding that, and the FSI rises to a more reasonable 5.49. However, even including the Ontario Place project, there was still a decrease in site area (SA) proposed this year, from 4.2 million square feet to 1.5 million.
Overall it is clear that there has been a dramatic shift between November 2021 and 2022 when it comes to development proposals being put forward for approval by City Planning department: fewer applications are being submitted overall along with reduced numbers and sizes for related categories such as parking spots provided per dwelling unit or Residential Gross Floor Area (GFA) per unit as well as Total Gross Floor Area (GFA), Site Area (SA)and Floor Space Index (FSI).
Most notable in this report, however, is that there was no noticeable increase in the number of applications, as there have been in years past. It is likely due to current market conditions; although the inflation rate is slowing down month-over-month, it is still high year-over-year, and combined with increases in borrowing rates, the costs of construction and carrying a mortgage have increased substantially. As these trends are global in nature, many analysts have been anticipating a recession in 2023. Despite these trends, however, immigration to the region continued at breakneck pace, indicating there is a high demand to live in the GTA.
This UTPro report for November 2022 paints a picture of an industry that is feeling the strain of rising costs due to inflation and increasing interest rates. Developers are becoming increasingly cautious when it comes to submitting new building applications, as evidenced by the significant decreases in Total GFA, Site Area, and FSI. However, strong immigration figures indicate that there is still demand for housing in Toronto. It will be telling to see how developers adjust their strategies over the coming years as the market continues to change.
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For more information about UTPro, contact Edward Skira.
