In 2019, the Toronto real estate market is poised to recover from the difficulties it experienced in previous years. The housing bubble of 2017 has finally been conquered, with double-digit price increases firmly in the past.
This more stable environment is beneficial for homeowners, even if real estate developers interested in making money in short-term investments may be disappointed by the turn in the housing market. Elias Markos, a Toronto real estate developer, explains the current market conditions for the region and across the country, examining both commercial and residential concerns.
Toronto and National Trends in the Housing Market
According to the Canadian Real Estate Association, the Canadian MLS Home Price Index is down 0.47 percent since March 2018. The market has been holding steady over the past year, in sharp contrast with the wild swings of 2017 and 2018. This has been attributed to the rise in interest rates, which is keeping many new home buyers out of the market. The greater Toronto MLS Home Price Index has risen only 1.46 percent since March 2018. Historical trends show that the Toronto price index is up 56.68 percent since March 2013.
The Toronto housing market has been challenged by a lack of new home starts. The Altus Group predicts that Toronto housing starts will dip by 5 percent in 2019. This may keep newer affordable housing out of the market, though the Canadian government is investing heavily in affordable apartments in the area. Nationally, housing starts are predicted to decrease by only 2 percent in 2019.
Commercial Real Estate
The Canadian commercial real estate market has grown along with Canada’s prominence on the world stage. Canada is taking its place among international economies with its stability and growth. The country is experiencing high levels of investment activity, a rise in construction starts, and occupancy rates, which are breaking records. This means that commercial real estate in Canada is a solid investment.
The disadvantages of living in such a bull market mean that there is a great deal more competition for existing properties. Construction and leasing costs have gone up considerably. This is still a good time to invest in Canadian commercial real estate, particularly in building new starts.
According to CB Richard Ellis, the Canadian national office vacancy rates have continued a steady downward trend while the asking rent of Class A space has continued to rise from $17.75 per square foot to $18.42 per square foot. For industrial real estate, the availability rate has experienced similar declines and increases in sale price per square foot. This points to a market where new investment could be an excellent choice.
In the greater Toronto area, the office vacancy rates are also down. The Class A asking rent for office space has gone from $35.47 per square foot to $36.75 per square foot in 2019. In the industrial market, the availability rate has declined to 1.3 percent. The office and industrial real estate sectors are stronger in Toronto than in the rest of the country, pointing toward good returns on investment.
The greater Toronto office market distinguished itself among North American cities in 2018, having the lowest downtown vacancy rate at 2.7 percent. Technology companies and coworking firms are driving these conditions.
In the greater Toronto industrial market, new supply has lagged behind demand for the past four years. Challenges presented which keep property owners from producing new space include labor access, construction costs, and entitlements. With luck, these market conditions will ease in 2019 and beyond, paving the way for gains in available industrial real estate.
Potential for Growth
Both the industrial and housing markets in Toronto have experienced banner growth over the past several years. Elias Markos states that these markets are now distinguished by high prices and high occupancy rates. These market pressures could be eased by new construction, but the rise in housing interest rates and the labor and cost pressures on the industrial market have hampered growth. Real estate in Toronto remains a solid investment and will help to produce new wealth in the market.