The return of the larger condo: Two-bedroom units make a come back as developers eye live-in buyers rather than investors.
By: Susan Pigg Business Reporter, Business Reporter, Published on Sun Dec 28 2014
The black billboard in front of the old Dip ’n Sip Donut shop at Kingston Rd. and Main St. is a sign of the times — in more ways than one.
It’s there to advertise that, yes, another condo is going up, and another eclectic piece of Toronto history is coming down. But it’s also a sign that change is coming to the condo industry.
Sometime next year, a bulldozer will be brought in and the aged diner, which had seen better days 20 years ago, will be razed.
In its place will go the next generation of condos. They will be less shoe boxes in the sky aimed at investors, and more permanent homes aimed at so-called “end users” — young families, folks looking for the conveniences of turn-key living, baby boomers looking to downsize in the same neighbourhoods where they raised their kids.
Streetcar Developments, better known for the kind of ubiquitous, boxy, glass-walled suites that now dominate Toronto’s skyline, is moving to the next stage.
Its newest project, The Southwood, will have just 45 units, most of them “family-sized suites” in a six-storey building with all the comforts of home (minus the upkeep), including outdoor space.
All the units will have balconies or terraces and more home-like amenities, such as gas stoves. Bigger units will have kitchen islands made for great gatherings. And there’s even a debate about whether to make a daycare centre part of the second phase, planned down the road and across the street, just steps from the Kingston Rd. TTC tracks.
Streetcar is far from alone.
Developers across the GTA are now doing a major rethink, and a retooling, with a host of projects that will feature fewer tiny units and more spaces where people can really live.
But they will come at a price — in Streetcar’s case, $600,000 and up.
“The biggest change in the condo market now is the bigger appetite for bigger homes for end users,” says Jim Ritchie, senior vice president of sales and marketing for Tridel, Canada’s largest condominium developer.
“As expensive as condominiums may be seen to be, when you look at alternatives — like houses — they are still less expensive.”
Tridel, like Streetcar, has new projects in the sales or development stages for 2015 that are turning conventional condo thinking on its ear.
Tridel was surprised when sales launched in the summer of 2013 for its 362-unit Aqualina Bayside project on Queen’s Quay. The company found that the units in highest demand were some of the biggest and most pricey.
Those units are typically the last to sell, which is why developers have flooded the condo market with so many one-bedrooms and even micro-condos up to 500 square feet. They have been hugely popular with investors looking to buy a unit and rent it out.
In fact, of the 100 units in Aqualina that sold for over $500,000, 31 of them were over $1 million and about 1,500 square feet.
As a result, Tridel stepped up the number of bigger units in the second phase of Bayside, called Aquavista. Bigger units will account for almost one-quarter of the 227 total suites. Sales just launched in November, but already end users have snapped up 25 of the $1 million-plus bigger units, says Ritchie.
“We also have a lot in the $800,000 and $900,000 price range, and we have some one-bedroom units. But our focus is really on two bedrooms and larger,” says Ritchie. “We’re seeing more of this demand from end users, and not all of it in the downtown.”
In many ways, this is an overdue correction in a condo market that had gotten out of whack.
Over the last five years in particular, unit sizes have been shrinking. Part of that has been a legitimate effort by developers to keep prices below $450,000 in the face of escalating land and development costs: Above that, buyers lose most HST rebates. But small condos also fed intense investor demand, which remains surprisingly strong but has eased from its 2011 peak.
In 2009, for instance, condo projects launched in the GTA had units averaging 929 square feet. By this year, new GTA projects launching sales had lost the equivalent of a bedroom and hit a low averaging 812 square feet, according to RealNet research.
The loss of living space has been even more pronounced in the popular downtown core. But already, unit sizes are starting to creep back up, says RealNet president George Carras.
The down side, however, is that average prices will also climb as units get bigger – and that’s worrisome given that the average cost of a new condo has already reached $455,000 as of this fall, not including monthly maintenance fees, according to RealNet.
Part of that is because new-build houses and condos are subject to the HST, where resale home aren’t. The $600,000 price tag for one of Streetcar’s The Southwood condos, for instance, includes $54,000 just in HST.
“That acts as a really negative influence for developers looking to build bigger units,” says Streetcar Development founder Les Mallins.
Since 2004, the mix of condos coming on the market has changed dramatically, RealNet research shows: Back then, some 47 per cent of the units in new project launches were two bedrooms. One-bedrooms accounted for about 41 per cent of all new unit launches.
But as land and other costs escalated, the mix shifted dramatically. At the peak in 2011, one bedrooms made up about 61 per cent of all new launches and two bedrooms just 31 per cent.
As of the end of this year, with developers looking to build bigger, the mix is returning to 2004 levels, with one bedrooms making up 48 per cent of new launches and two-bedrooms catching up at 41 per cent.