Toronto’s condo market may be softening, but not all unit types are performing badly, according to a new report from Realosophy Realty.
Units no bigger than 600 sq ft have outperformed their larger counterparts for the last few years, however, the reverse has been true in 2020. According to the November 2020 Move Smartly Report from John Pasalis, Realosophy Realty’s president, smaller units are oversupplied and, consequently, harder to sell than units that are at least 2,000 sq ft, which are classified as luxury.
“Inventory levels decline as units get larger, reaching their lowest level in the 1,200-1,399 range before gradually increasing again as units get larger,” said the report. “On the ground, that means if you’re a buyer looking for a 1,200-1,399 sq ft unit you’re likely to find the market tightly supplied with units selling relatively quickly. If you’re looking to buy a condo that is smaller than 500 sq ft, the supply of units significantly exceeds demand today. This shift away from micro condos is likely due to a desire for larger living spaces as more people are working from home due to COVID restrictions.”
The report noted that, historically, if a unit type has elevated months of inventory, prices begin declining. Add new completions to the mix and the fall could become steep.
“If this trend continues into the future it suggests that we may end up seeing more downward pressure on very small condos while larger units may end up performing better,” continued the report. “The other reason this trend is noteworthy is because small condos make up a significant portion of the new condo supply that is coming on the market. More inventory of small condos from new condo completions could put even more downward pressure on prices.”
The effect that’s had on Toronto’s condo market, particularly downtown, is an escalating vacancy rate. Research from Urbanation showed that condo rentals listed for leasing in Q3-2020 doubled on an annual basis to 23,288 units, and that average monthly rents declined by 9.4% to $2,249—the lowest since the first quarter of 2018.
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