Last month, Bullpen and Batory Management released the Q3-2022 GTA High-Rise Land Insights Report (Sign Up to Receive Future Land Insight Reports), which showed that developers are cautious, at least in the short/mid-term, as data from the report points to a slowdown in quarterly high-density land sales and flat land values. This report is sponsored by Baker Real Estate.
The average land price per-buildable-sf in the GTA was $95 for the second consecutive quarter in Q3-2022, tying for the second lowest total since Bullpen and Batory started publishing this report in Q4-2017. The average land price over that time is $113 pbsf, so land is about 16% lower than the long-run average.
However, as with everything, this is nuanced, as the Q3-2022 per-buildable-sf (pbsf) trended downward in the City and the suburbs the last four quarters (as shown below). City of Toronto high-density land sales traded for $102 pbsf on average in the third quarter, compared to $45 pbsf in the ‘905 Area’.
‘416 Area’ lands soared to a high of $190 pbsf last year but generally stayed in the range of about $120 to $140 pbsf from 2019 to 2021. The recent growth in construction costs and interest rates have pushed land values down lower than these levels.
Bullpen President Ben Myers commented on other factors impacting value in this interview with Renx.ca (see full article Renx Land Insight Article):
“The market has softened, and we’re in a period of uncertainty with resale prices trending down and the potential for even more interest rate hikes in the future,” said Myers. “I think everyone’s being cautious.”
Over the next year, continued government intervention, elevated interest rates, high labour/ construction costs, and slower sales have delayed the launch of new condominium apartment projects in the second half of 2022, which is likely to continue into 2023. Vocalizing this in data, Ben said the following –
If the small number of zoning-approved, high-density residential land sales in the third quarter are any indication, condominium developers are in no rush to launch new projects in the Greater Toronto Area (GTA).
Beyond platitudes, these sentiments showed in the data as the Q3 land prices declined 46% to $102 pbsf from the above-noted $190 high in Q1-2021. Over the last year, suburban high-density land values have also dropped 40% from the Q3-2021 price of $75 pbsf down to $45 pbsf.
Savvy developers continue to look for deals and seek out areas where revenue will remain high and demand strong. In terms of areas with the highest land prices over the last 4.75 years, the following chart shows the average prices on a per-buildable-sf basis for neighbourhoods with 10 or more transactions.
To end this writing on a positive note, Bullpen has seen potential in the underdeveloped Scarborough as well as places shown on the chart above, including Downsview, Weston and Cooksville, with attractive pricing under $100 pbsf.
An interesting situation for late 2023 or early 2024 is that today’s slowdown sets the table for competition to reach an all-time high from the elevated number of developers sitting on ready-to-go projects, which may also push down land sales over the next year.
However, as Ben mentioned in the RenX article, many well-heeled developers are still underwriting and seeking well-priced lands to feed their future pipeline.
Be prepared for a major slowdown in market activity in terms of land sales and new condo absorption. Developers and buyers will need to be prepared, as these conditions could set the table for frenetic activity in 12 to 18 months.
As the above map shows, development, particularly development with higher pbsf centres around downtown. With 2023 on the horizon, which – if any – of the surrounding municipalities will step forward as a haven for development?