The Austin Birch Report Vol. 2

THE REPORT

Looking ahead to a bright future for the GTA pre-construction market Volume 2 July 2021

Executive Notes We have experienced a period of tremendous upheaval in the residential development industry. The landscape has changed considerably, and we’ve seen brokers and clients alike attempt to navigate the shifting, unique aspects of pandemic property ownership within the Greater Toronto Area.

Last quarter, our report presented a wealth of statistical, empirical and anecdotal data from over 3,000 of the GTA’s platinum pre-construction condominium and new home brokers.

We distilled their key insights to get a sense of where the market was trending and explore their expectations of this year’s real estate market.

In volume 2 of the Austin Birch report, we delve into the substantial shift in perspective brought about by the pandemic and felt throughout the real estate industry. As such, we’re proud to present you with a cohesive overview of the market as a whole, discussing commercial, retail and residential trends in order to help you remain up-to-date, understand what’s happening on the ground, and build a strong foundation to inform your next actions in the 2021 market.

With all these various figures at play, we’re excited to say that there is a light at the end of the tunnel. From our research, it has been made abundantly clear that the market is resilient.

Downtown is returning to life, seeing attention shift from the surrounding neighbourhoods back to the city’s core. Office leasing activity is increasing across the country, with companies preparing for a return to work in the second half of the year. Retail is rounding the corner as the population of vaccinated citizens rises, eager for revenge shopping.

This is truly an exciting new chapter for the GTA, with many different sectors working towards a bright new future. We’ve collected and refined key market observations for you – gathered from factual research data and real-time feedback from partners in the realtor community, insights from a top Toronto developer, and insider perspectives from experts in the retail and office market.

Thank you to everyone who contributed their thoughts and insights to this edition of the Austin Birch Report. Your collaboration has helped us to hone this informative piece and deliver something truly spectacular.

The future is looking bright. See you there.

Eric Kuzuian

Jamie Sarner

PARTNER

PARTNER

Sources: TRREB, Urbanation, CMHC

3

By The Numbers

By Saraya Yen 4

THE REPORT

Volume 2

Sources: TRREB, Urbanation, CMHC

5

By The Numbers

By Saraya Yen

Residential Development Q2 Launches and Sales

20

New development projects launched in Q2

11

Projects launched in downtown core (Incl. CBD, Etobicoke and Midtown)

9

Projects launched in 905 (Milton, Vaughan, Mississauga, Oakville, Burlington and Port Credit)

5,300

Units launched (up from 3,350 in Q1)

2,886

New Condo Units Sold in Toronto’s CBD (higher than quarterly averages of Q2- and Q4-2020 )

Source: Urbanation

We are beginning to see momentum shift away from the outer suburbs and return to the downtown core with sale amounts that are 2.5 times higher than the quarterly average and above the pre-pandemic level of 2,829 sales.

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By The Numbers

By Saraya Yen

Residential Unit Q2 Launches and Sales

5,385

Source: Urbanation

PRE-CONSTRUCTION SALES ACROSS GTA

5,593

Pre-pandemic sales in Q1 of 2020 (only 4% higher than 2021)

4,924

1 0-year average sales/quarter (Q2 reported sales surpasses this average by 8.5%)

76%

of new condos that launched for presale were sold (by the end of Q1)

Although slightly lower (4%) than pre-pandemic numbers, current sales surpass the 10-year average, and overall sales are at the highest level of opening quarter absorption since 2017.

9

By The Numbers

By Saraya Yen

Average New Condo Prices & Percentage Growth

SOLD GTA AVERAGE

$1,261/PSF – 8.8% Y/Y Growth SOLD TORONTO DOWNTOWN AVERAGE

$1,419/PSF – 5.7% Y/Y Growth SOLD CITY OF TORONTO AVERAGE

$1,178/PSF – 3% Y/Y Growth Source: Urbanation

Downtown is alive and well, showing impressive average pre-construction prices for new units ($1,419 PSF - up 5.7% from Q1-2020). These, in turn, have encouraged record high average sales prices for new presale units ($1,261 - up 8.8% from Q1-2020).

11

By The Numbers

By Saraya Yen

Average New Condo Prices & Percentage Growth

UNSOLD GTA AVERAGE

$1,178/PSF – 8% Y/Y Growth UNSOLD TORONTO DOWNTOWN AVERAGE

$1,416/PSF – 3% Y/Y Growth UNSOLD CITY OF TORONTO AVERAGE

$1,274/PSF – 4% Y/Y Growth Source: Urbanation

Unsold inventory has declined to a 10-quarter low in the GTA. With this strong demand, savvy developers have been able to increase the prices of their unsold units by an average of $45 PSF (4%), with great results.

13

By The Numbers

By Saraya Yen

Resale Numbers

74%

INCREASE OF RESALES FOR GTA CONDOS

104%

INCREASE IN ACTIVITY FROM Q1-2020

$1,018

RESALE PRICE AVERAGE

/PSF

6% Source: TRREB

INCREASE IN RESALE PRICES FROM Q4-2020

Early Q2-2020, we saw a significant push towards pre-con sales as brokers shifted buyer interest away from resale condos. Frustrated with the competition and pricing of resale, buyers were more receptive towards longer pre-con wait times.

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By The Numbers

By Saraya Yen

Rental Numbers at a Glance

4,795

Approx. leases available in Toronto

78%

Annual lease activity growth in Toronto

$2,278

Average list price in Toronto (8.2% decline from 2020)

46%

Annual lease activity growth in 905

$2,037

Average list price in GTA (considering “free rent period incentives”)

6.6%

Vacancy rate in GTA (increase from 5.7% in Q4-2020)

$2,033

Average list price in downtown core (16.2% decline Y/Y)

8.8%

Vacancy rate in downtown core (increase from 7.3% in Q4-2020)

$2,053

Average list price 905

1.5%

Vacancy rate in 905

Sources: TRREB, CMHC

Demand has shifted back to the downtown core, with lease transactions increasing by 70% from 2020, reaching a Q1 high of approx. 11,928 units, and annual lease activity growth in Toronto outperforming the 905 Region by a wide margin.

17

By The Numbers

By Saraya Yen

New Rental Construction

1,009

New rentals started construction in 2021

73%

Decrease from 2020

13,563

Total purpose-built rental construction across GTA

2.2%

Decrease from 2020

86,683

Total proposed purpose-built rental units

34%

Increase from 2020

Over 100,000

Total units under construction and planned in GTA

Sources: CMHC, Urbanation

Although new rental construction has slowed the past year, longterm planning for purpose-built rentals continues to increase.

Neighbourhoods are welcoming these high-end developments – which they now realize shows confidence in their market.

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Word On The Street

By Tannaz Taghizadeh 20

THE REPORT

Volume 2

WE CONNECT WITH OUR NETWORK OF BROKERS FOR UNIQUE INSIGHTS INTO THE CURRENT MARKET.

21

Word On The Street

By Tannaz Taghizadeh

What are the most exciting upcoming launches?

VERGE CONDOS BY RIOCAN

ADAGIO BY MENKES

RioCan is a big name with a lot of clout.

The Adagio has received a lot

This, along with Verge’s price point, has

of attention for its comparably

created a lot of excitement for purchasers.

low price point considering the optimal Yorkville location.

CREST AT CROSSTOWN BY ASPEN RIDGE

THE MASON AT BRIGHTWATER

Crosstown’s newest addition, Crest,

The Mason is a massive

presents purchasers with a boutique living

community that brings a prized

option at a very reasonable price.

sense of safety and protection for younger families with kids.

ANYTHING IN OAKVILLE Purchasers are eager to find living in connected, heritage-focused Oakville – especially given the variety of condos, townhomes and freehold townhomes available.

Although our network of brokers spoke to a stunning collection of incredible upcoming projects, these five noteworthy responses kept surfacing in every conversation.

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Word On The Street

By Tannaz Taghizadeh

What is the most exciting neighbourhood?

OAKVILLE

65% of brokers praise this GTA neighbourhood

1.

Ranked the number one place to live in Canada by Money Sense Magazine

6.

Close proximity to top medical facilities

2.

Incredible employment opportunities and programs to fund businesses

7.

Oakville GO Station is the second largest train terminal after Union Station

3.

Easy access to top schools

8.

Only 30 minutes from Toronto

4.

Plenty of recreational and sports facilities

9.

Rated one of the safest places to live

5.

Excellent real estate investment

10.

25,000 acres of parkland along with beautiful shoreline

Known as a classic European town by the water, Oakville is a notable favourite for homeowners and brokers alike. Plus, prices for new developments here are still reasonable when compared to downtown Toronto.

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Word On The Street

By Tannaz Taghizadeh

What incentives are attracting buyer attention?

85%

DEPOSIT STRUCTURE

Honourable Mentions: RIGHT TO ASSIGN, PARKING INCLUDED, LENIENT MORTGAGE PRE-APPROVAL REQUIREMENTS

Brokers were resolute, stating that buyers care greatly for the safe investment and higher return of deposit structures. However, the right to assign provides important peace of mind and quicker potential returns, while parking draws attention from downtown-weary buyers, and lenient mortgage requirements ease a heavy burden for potential residents and their realtors.

27

Word On The Street

By Tannaz Taghizadeh

What percentage of investors to buyers are you currently working with?

70%

INVESTORS

30%

END-USERS

This ratio has remained consistent for the past several years, with investors being primarily local Canadians who are purchasing the investment for their children or themselves.

29

Word On The Street

By Tannaz Taghizadeh

What is the deciding factor for a buyer when considering a purchase?

85%

PRICE POINT

15%

UNIT TYPE

Price point is key in the final purchase decision. In fact, buyers are adamant about finding opportunities that come in under $700,000, as this greatly reduces their risk on closing, getting a mortgage and paying the deposit.

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Developer’s Pulse 32

THE REPORT

Volume 2

33

Developer’s Pulse It is critical for developers to be proactive when assessing the needs of their purchasers - ensuring their projects not only reflect current market expectations but also push beyond to present something new and spectacular.

In the wake of the pandemic, there has been a tremendous shift in thinking concerning residential development. Everything from layout design to amenity offerings, sustainability and wellness to the sales process and more have changed to accommodate the new realities of COVID. As a fully integrated and hands-on firm, Austin Birch has experienced this new reality first hand. It is an exciting new time where different considerations must be taken into account. We are proud to work alongside industry experts to help them navigate these important demands and new changes in buyer appetite.

As such, we connected with Jeff O’Reilly and Matt Brown from Minto Communities to get his unique perspective on the post-pandemic development process and further shed some light on the changes he felt throughout the industry.

35

Developer’s Pulse How has the focus on amenities changed in the last 18 months?

AUSTIN BIRCH INSIGHTS

uilding amenities are B app powered, allowing for less contact

Common area entry doors are becoming touchless

Elevators can be called and floor destination selected by app

pecial air filtration S systems are being installed in buildings

ackages are now P scanned and left in special package lockers

Private workout, content creation spaces and work booths

Some lockers may offer cold storage to accommodate food and grocery

Larger exterior spaces with more separate areas to allow for gatherings

“

We are focusing on leveraging smart building technology to enhance the experience of circulating through the building via a touchless path of travel and providing wellness data to residents.

”

— Brown, Minto Communities, 2021

37

Developer’s Pulse Have unit designs or layouts changed during the pandemic?

AUSTIN BIRCH INSIGHTS

lthough there was an anticipated increase in sales and demand for A larger downtown suite layouts, we haven’t seen this change. Instead, we have found that, for the first time ever on record for our industry, condo sales in the 905 surpassed sales in the 416 in the year 2020.

“

While suite layouts have not really changed, we are seeing more interest outside the core. Land and construction costs will always limit unit size in downtown, so many investors who desire more open space feel comfortable investing in projects around the GTA.

”

— O’Reilly, Minto Communities, 2021

39

Developer’s Pulse How has Sustainability and Responsibility become more of a primary focus?

AUSTIN BIRCH INSIGHTS

Notable increase in sustainability offerings

igher standards for H builds (triple pane windows, insulation)

Temperature control available on mobile device

Greater utility savings available

ntrance to the E building available on mobile device

Greater presence of energy monitoring

“

The impact on daily life allowed customers to better understand how sustainability can make their lives better and more resilient.

Sustainability and corporate responsibility are core to how Minto develops and builds communities, and the pandemic highlighted the importance of this approach. This created an opportunity that allowed us to advance future initiatives, most recently the launch of a NetZero.

”

— O’Reilly, Minto Communities, 2021

41

Developer’s Pulse How has the sales process changed/adapted?

AUSTIN BIRCH INSIGHTS

Industry-wide transition to a completely virtual sales process

Web Portals have been instrumental in the switch

Virtual information sessions are highly successful

•

D ocument signing

•

Wire transfer for cheques

•

V irtual finish choice appointments

•

3D virtual tours

•

T ailored to both registrants and brokers

•

D issemination of key details during sales program

•

O ffer pricing details, utility plan information and full purchase and sale agreements

•

G roup presentations

•

Virtual sales launches

•

One-on-one meetings control messaging and brand

“

Early last spring, we shut down all Sales Centers and began work on the MCC GTA - Virtual Sales Process. Despite a strong virtual program, we noticed buyers struggled – needing more time and details to educate themselves and move forward confidently online. With this in mind, we crafted a virtual experience that focuses on education for brokers and buyers, one that eases concerns and creates a notably safe and efficient system.

”

— Brown, Minto Communities, 2021

43

Developer’s Pulse Where are there development opportunities in the GTA?

AUSTIN BIRCH INSIGHTS

112

Pre-construction condos in Halton

294

ew singles and N towns in York

118

ew singles and N towns in Halton

144

Pre-construction condos in Durham

141

Pre-construction condos in Peel

352

ew singles and N towns in Durham

479

ew singles and N towns in Peel

1,593

Pre-construction condos in Toronto

406

Pre-construction condos in York

22

ew singles and N towns in Toronto

“

There are many opportunities in the GTA. Areas which are transit-oriented and well connected to the core are prime for revitalization. Also, areas that are considered suburbs in the GTA offer opportunity for mid and high rise projects because they introduce a new product type and price point which is now attainable to those whose only options were large and expensive lowrise homes.

”

— O’Reilly, Minto Communities, 2021

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Retail and Office 46

THE REPORT

Volume 2

47

Retail and Office With recent milestones reached in pandemic stabilization alongside Canada making its first steps as a global leader in first dose vaccination rates, the Canadian commercial real estate market is steadily improving.

In fact, there has been a slew of increased office activity across the country, with downtown office leasing rising in major cities and prime industrial real estate availability seeing an all-time low. All signs point towards a light at the end of the tunnel as office vacancy rates rose by their smallest quarter amount since the beginning of the pandemic.

We discuss the future of the retail and office market with Arlin Markowitz of CBRE and Aaron Graben of Titan York to get unique insights into the country’s economic upswing and how this affects the city of Toronto.

49

Retail and Office What is the current and future outlook of the retail/office market?

52.4%

INCREASE IN CONSUMER CONFIDENCE

4.4%

ANNUAL CORE RETAIL SALES GROWTH SINCE 2020

8.3%

YEAR-TO-DATE SALES GROWTH (2021)

“

The market will roar back in 2022 stronger than ever before. Revenge shopping is real, and humans love humans, so we will be back in the office soon.

”

— Markowitz, CBRE, 2021

51

Retail and Office What key factors are driving the increase in consumer spending?

91%

DECREASE IN COVID CASES (FROM Q2 2021)

56%

CANADIANS FULLY VACCINATED

44%

INCREASE IN CONSUMER CONFIDENCE (FROM Q2 2020)

5%

DECREASE IN HOUSEHOLD DEBT RATIOS (FROM Q1 2020)

“

A combination of easing restrictions, warm weather and the strong rollout of vaccinations is resulting in a rebound of consumer confidence and spending patterns, as well as a decrease in household debt throughout the GTA. This should continue if other economic factors remain stable or improve.

”

— Markowitz, CBRE, 2021

53

Retail and Office How has this new consumer confidence affected the retail market?

+6%

Health and personal care

+16.1%

Electronics & appliances

+8.3%

Food and beverage

+20.8%

Miscellaneous

+11.8%

General merchandise

+ 27.3%

Building & Equipment (essential retailer)

+12.2%

Furniture and homes

–14.5%

Clothing & Accessories

+12.9 %

(down from 32.7% in April 2021) Recreation

“

There is no clear-cut segment of the market that is outperforming the others. We are seeing that most retail categories have posted more modest levels of recovery, with only one category remaining in red; down from the three categories in red during Q1.

”

— Markowitz, CBRE, 2021

55

Retail and Office How has the office leasing landscape been faring over the last few months?

OVERALL VACANCY INCREASE HAS EASED

SUBLET VACANCY HAS DECREASED

OVERALL PRICES HAVE REMAINED STEADY

“

Conditions are steadily improving, showing signs of rounding the corner as office vacancy rates rose by their smallest quarterly amount since the onset of the pandemic. Sublet space is suddenly in high demand, with some companies pulling sublets off the market to reoccupy the space while others, positioning for an economic rebound, are leasing those spaces.

— CBRE, 2021

”

57

Retail and Office Have there been any notable recent transactions that signal this confidence in office?

cotiabank renewed their lease S at Scotiaplaza for 560,000 sq.ft. earlier in the year

sset repositioning strategies from companies such A as RioCan and Cadillac Fairview see the conversion of existing retail structures into office space

Twitter renewed their lease for 16,000 sq.ft. at King West

“

As large companies continue to invest substantially in creating and retaining office space, consumer confidence rises considerably. They see the confidence of these powerhouses and internalize it.

— CBRE, 2021

”

59

Retail and Office How has the pandemic affected the future of retail sales practices?

2020

2021

2025

4.3%

DECREASE IN RETAIL STORE ATTENDANCE

31.6%

INCREASE IN ECOMMERCE GROWTH

4.3%

INCREASE IN RETAIL STORE ATTENDANCE

8.1%

INCREASE IN ECOMMERCE GROWTH

17%

CBRE FORECASTS THAT BY 2025 OVER 17% OF TOTAL RETAIL SALES WILL HAPPEN ONLINE.

“

Retailer and landlord strategies have evolved to keep pace with shifting consumer dynamics forwarded by the digital revolution by building out online offerings. This new online outlook remains, and its growth is being been led by traditional brick and mortar stores.

”

— Markowitz, CBRE, 2021

61

Retail and Office How will we see the retail market further recover in the upcoming months?

SECTORS THAT WILL LEAD RECOVERY*

LUXURY GOODS

CASUAL DINING

HEALTH AND BEAUTY

*BASED ON WHAT WE HAVE SEEN FROM CHINA’S RECOVERY

“

The retail market in China is showing a slow return to normal and, from that recovery, we can assess how Canada might follow suit. Although fast fashion, fine dining, gyms and cinemas have experienced a weaker rebound, retail outlets, luxury, health & wellness, casual dining, and beauty sectors are seeing increased traffic due to substantial social distancing and density controls, as well as increased hygiene measures.

”

— Markowitz, CBRE, 2021

63

Retail and Office How has the office leasing landscape been faring over the last few months?

1%

VACANCY RATE IN DOWNTOWN SOUTH (APRIL 2020)

29%

VACANCY RATE IN DOWNTOWN SOUTH (APRIL 2021)

3M

NEW OFFICE SPACE COMPLETED IN 2021

/SF

“

The office landscape is looking good, despite what the daunting numbers may suggest. This rise in direct vacancy rates is actually related to the expansive new office supply coming to the market, not decreasing tenant rates. In fact, some of Toronto’s largest new office projects came online just this year, greatly affecting the numbers.

”

— Graben, Titan York, 2021

65

Retail and Office How has vaccine rollout affected office vacancy rates?

SUBLEASE VACANCY IN GTA HAS PLATEAUED

COMPANIES ARE REMOVING SUBLEASE LISTINGS

OFFICES NOW DOWNSIZING FOR CULTURE FIT, NOT NECESSITY

“

We are already seeing downtown corporations removing sublease listings from the market in anticipation of returning employees. Interestingly though, companies who weathered the pandemic are now looking at WFH/hotelling models and concluding that giving too much space back may not work as the pendulum swings to back-to-office employer policies.

— Graben, Titan York, 2021

”

67

Retail and Office Why were suburban office vacancies largely unaffected by the pandemic?

COMMUTE TO OFFICES TYPICALLY BY CAR, NOT PUBLIC TRANSIT

CHEAPER TO HOLD SUBURBAN OFFICE VS. DOWNTOWN OFFICE

SUBURBAN NODES ARE CLOSER TO PEOPLE’S HOMES

FEWER START-UP TECH TENANTS

“

This is primarily due to suburban living being more conducive to pandemic safety. However, the smaller amount of start-up tech tenants was also a contributing factor as these companies were early adopters of subleasing and disposing of space – quickly moving their workforce to a zoom/home office culture.

”

— Graben, Titan York, 2021

69

Retail and Office Has there been any notable sublease activity in the office market?

RENEWED LEASES

SCOTIABANK — 560,000 SQ.FT. AT SCOTIAPLAZA

TWITTER — 16,000 SQ.FT. AT KING WEST

ASSET REPOSITIONING

RIOCAN — REVITALIZATION OF RETAIL INTO OFFICE SPACE

CADILLAC FAIRVIEW — CONVERSION OF RETAIL INTO OFFICE SPACE

“

There are 1.4 million square feet of listed sublease spaces downtown, but in terms of a total market of 79 million square feet, this is not a lot. Also, we can see that the large institutional tenants that occupy most of downtown are still in good shape, renewing their full lease with confidence.

— Graben, Titan York, 2021

”

71

Retail and Office What do you think will happen for the office market in the short term?

INCREASED COMPANY MOVEMENT

INCREASE IN 2- TO 3-YEAR LEASE TERM EXTENSIONS

TENANT MARKET FOR THE NEXT 12 MONTHS

“

With many finished spaces coming to the market this year we will be experiencing a Tenants’ Market and companies have an opportunity to get into an upgraded space or to get landlords to invest in leaseholds.

However, most tenant strategies will be to apply for short 2-to-3-year lease term extensions (with an expectation of some inducements such as free or lower rent).

— Graben, Titan York, 2021

”

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Who We Are At Austin Birch, we offer a comprehensive service encompassing all aspects of condominium sales.

Founders Eric Kuzuian and Jamie Sarner provide years of specialized experience and a track record of $8 billion of prime real estate sold in the Toronto marketplace. Our focused team of passionate professionals enables us to provide an unrivalled level of service that you simply won’t find elsewhere. At Austin Birch, a fresh, innovative approach is matched by our proven knowledge and expertise in the sector, making us your strategic partners for real estate marketing and sales in Toronto.

25+

10+

Award-winning projects, Including 3 prestigious awards for BILD Project of the Year

Over 10 years specializing in development marketing and sales

$8B

35+

In new development sales

Projects marketed and sold

75

What We Do Positioning real estate developments for the marketplace is an extremely complex business.

Our hands on approach encompasses the entire marketing and sales process.

We understand all the different elements required to make a project successful and therefore have developed a highly attuned methodology that guides our clients every step of the way.

77

Contact us to discuss your upcoming project

austinbirch.com 647.953.4335 info@austinbirch.com

Copyright © 2021 Austin Birch The information contained herein is general in nature and is a guide only. The data has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it.

No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their own independent advisors prior to acting on any of the material contained in this report. It does not take into account your individual circumstances. The principals and its agent will not be liable for your failure to verify the information or seek appropriate advice.