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Writer's pictureROSS TALIBOV

Analyzing the GTA High-Density Land Market for Q3 2024


Analyzing the GTA High-Density Land Market for Q3 2024

The Greater Toronto Area’s (GTA) high-density land market continues to adapt to evolving market conditions and changing economic forces. Recent insights shed light on key trends, with notable observations on land pricing, development challenges, and future projections. Here’s a breakdown of the most crucial takeaways.


Key Market Trends

In Q3 2024, the average price per buildable square foot (pbsf) for GTA land transactions aimed at high-density developments fell to $98, reflecting a 13% decrease year-over-year from Q3 2023’s $112. This decline highlights the caution developers are exercising due to rising costs, flat rental rates, and a slow pre-construction sales market.

1. Land Prices in Toronto vs. Suburban Areas


Land Value by Toronto Neighborhood Graph: A bar chart showing land value per buildable square foot across Toronto neighborhoods, highlighting Yorkville, Entertainment District, Danforth Village, and others.

A significant price disparity persists between Toronto (the "416 Area") and the surrounding suburbs (the "905 Area"). The average 2024 land price in Toronto was $112 pbsf, more than double the suburban average of $54 pbsf. Within Toronto, areas like Yorkville and the Entertainment District maintain higher land values due to their desirable locations and historical high sales revenue per square foot.

In contrast, suburban markets like Mississauga and Brampton saw prices more in line with the regional averages. Mississauga’s recent increase, particularly in Lakeview Village, saw land values rise to $102 pbsf, a 70% jump from the previous year, due to heightened interest in master-planned communities.

2. Land-to-Revenue Ratios (LRR)


Unit Revenue by Toronto Neighborhood Graph: A bar chart displaying estimated unit revenue per square foot across Toronto neighborhoods, with Yorkville having the highest revenue, followed by areas like the Entertainment District and The Queensway.

Land-to-Revenue Ratios reflect what developers are willing to pay for land in relation to projected revenue. This ratio stayed steady in the 416 area at 9%, while suburban areas held at 5%. Developers are factoring in expected revenue growth in areas allowing denser projects, with municipalities supporting more extensive floor space indexes (FSI), particularly in suburbs. This trend could continue as development charges are anticipated to decrease with effective lobbying efforts from industry players.


Market Forces at Play

The high-density land market in the GTA faces challenges as developers and investors navigate factors like high debt costs, cautious lender sentiment, and developers’ hesitancy to lower land prices. Despite these pressures, some key market forces indicate potential recovery:

  • Interest Rate Cuts: Recent rate reductions may alleviate borrowing costs, fostering renewed demand among buyers.

  • Population Growth: High immigration rates, with over one million new arrivals in Canada, including 500,000 in Ontario, are expected to eventually strain housing supply, creating upward pressure on prices and rents in the coming years.

  • Supply and Demand Realignment: Fewer condo launches and elevated levels of under-construction inventory may lead to an undersupply by 2027-2028, potentially reinvigorating investor interest and lifting land values.


Development Landscape in Q3 2024

The third quarter recorded 29 high-density land sales, up from 19 in Q1. Developers remain cautious but continue land assemblies and project planning in high-demand areas. Noteworthy transactions include:

  • The Junction: Priced at $202 pbsf, this area reflects the growing demand for land suitable for assembly projects, achieving a high LRR of 19%.

  • The Queensway: A distressed sale in this area recorded the highest value at $257 pbsf, driven by its zoning approval status and proximity to valuable real estate assets.


Outlook

While the high-density land market faces near-term challenges, developers are actively scouting for opportunities as municipalities become more open to denser projects, especially in suburban areas. Toronto’s market fundamentals remain strong with its robust immigration-driven demand, sustained population growth, and anticipated regulatory shifts favoring reduced costs. As developers strategize for long-term growth, patience and adaptability will be key to navigating current market complexities.


Disclaimer: Data from the "Q3-2024 GTA High-Rise Land Insight Report" by Bullpen Research & Consulting Inc. and Batory Management.



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