Toronto’s Residential Developers are Best Suited to Dominate Land Purchases

The Globe and Mail wrote a very interesting article titled “In Toronto’s land war, condo builders are better armed” by Cole Burston. Here are today’s lighting points (three of the most important points):

  1. The demand fundamentals for residential units within the city has resulted in residential developers being able to far outbid office developers.
    1. Condo builders can get higher return (10-15%) and get their money out faster (~10 years) than an office developer who probably has to wait ~20-30 years (assuming a 3% cap rate for AA office space in the core of Toronto) and get far less return on their money (i.e. 3% cap rate).
  2. The disparity seems to be increasing. A recent transaction for 1323 Bay St., in Yorkville, sold for $380 a square foot (I presume this refers to $/buildable foot, more detailed data was not available), which is double what any office developer could pay for
    1. considering the fact that a condo sells for ~1100-1200/sqft in that area, that means that right out the gate, ~30% of their cost is land
  3. Lack of office space coming online means that future price in the office sector should increase.
    1. The office vacancy supply is already very tight. Altus Group’s 2018 Slate of the Market report states that office vacancy in Toronto fell for the first time in 6 years even though 2 million SQFT of space came online. Read JLL’s Q4 2017 Office insight report here.

Thank you for your time. Please let me know how I can make this article and website better.

Hadi is Honours civil of engineering graduate with solid project management experience in the construction industry. Solutions-focused, results-oriented with strong business acumen and entrepreneurial spirit. Currently, he is working as an assistant site-superintendant with Darcon Inc. at one of Vaughan's biggest developments, Centro Square.

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