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We are very pleased to inform you that the 2018 issue of Robert Hof's Condominium Link is ready and waiting for you. It contains 12 pages of top level level information concerning the condo market in Ottawa. Our lead article comments on the 2017 market and what may lie in the future. We are also pleased to have a prominent lawyer's explanation of changes to the Condominium Act – and very much more.
We have earlier issues of our newsletter available too. If you would like to receive a copy please drop my assistant a line at email@example.com or firstname.lastname@example.org and she will email it to you.
For purposes of comparison we have included the lead article from 2017's edition.
2016 IN REVIEW – A turnaround, albeit a minor one
Last year, we forecasted that the Ottawa real estate market would emerge from two years of downturn and start to put in place the pieces of a turnaround. The forecast also anticipated a modest increase in real estate sales, albeit not necessarily in new condos. Sure enough, 2016 saw real estate sales pick up, both in MLS and new home sales overall, but new condo sales plunged to a record low of 501 units.
Although the general mood remains grey and expectations low, the real estate market witnessed three important pieces of its turnaround in 2016. All three are solid leading indicators of an upswing that will start to gather steam in the two years ahead.
The first leading indicator was a decrease in the rental vacancy rate. Rental markets typically tighten when population increases accelerate. In 2016, Ottawa experienced a double source of population influx: international migration jumped by 62%, according to Statistics Canada (perhaps related to the arrival of Syrian refugees and to international university registrations, which rose by 57%).
From an uncomfortable 3.4% in 2015, rental apartment vacancies retrenched to an even 3% in 2016, despite the addition of over 2,300 new condominium units offered for rent and almost 500 new rental units in purpose-built projects (another novelty). Generally, a range of 2-3% vacancy is considered the benchmark of a balanced market, with anything higher being a renters’ market, and anything lower a landlords’ market.
When the rental market is in balanced territory, rents can increase. As reported by CMHC in December, the average Ottawa apartment rent went up by 2.1%, slightly ahead of inflation. This remains a timid rate of increase, but it is a net increase nonetheless. Thus, the cost of renting remains below the cost of owning for Ottawa households, and this is the math that continues to support the rental market’s solidity.
However, as vacancy rates tighten, rents start to increase at a faster rate, which narrow the gap between renting and owning. This, in turn, translates into higher home sales, first in the resale market, then in the new homes market. This leads us to our second leading indicator: the resale market.
The total number of MLS sales reached an all-time record in Ottawa: the 15,599 sales recorded in 2016 represented a robust 6 per cent increase over 2015 and featured better totals than the previous year for both condominiums and houses.
The third indicator was an uptick in new home sales. Ottawa-area builders reported a 10 per cent rise in sales in 2016, with the most significant gains recorded in singles and towns. Condo sales, as mentioned above, languished. But overall, the new homes market had a good year.
The performance of these indicators reflect a number of factors that underlie the market’s fundamental confidence in Ottawa, despite an appearance of tranquility. Employment stability has returned to the city following the late-2015 federal election. Employment is up in the public sector, but not only there: the high-tech sector is expanding again, with new job announcements by QNX, Blackberry, Huawei, Shopify and others, expanding areas of research in wireless technology and automated-vehicle software, rising venture capital investment in Ottawa companies, and rising levels of employment among the under-34 age group. These are all signs that point to gathering strength in the year ahead for the real estate market.
How has this, then, played out in the new condominium market? At first glance, not very visibly. New condo sales in 2016 were down from the previous year. There were headlines in early 2017 proclaiming that a renaissance of the new condo market was “not on”. The industry itself was still very much in retrenchment mode throughout 2016. Some projects were cancelled (most notably, The Azure, at Richmond and Woodroffe, despite achieving almost 60% pre-sales), and Bank Street’s Joyce House (perhaps predictably, given its adventurous price points).
Other projects, interestingly, are proceeding as rental buildings (such as Domicile’s former Nuovo condo in Little Italy, or Phoenix’s Pointe West on Greenbank Rd.), and in some cases as student accommodation (such as Ashcroft’s Envie on Champagne Avenue and Textbook’s planned high-rises on Rideau Street and Bronson Ave.). If anything, this shows that the market has shifted its focus to provide housing for the under-served segments of the market, which still has appetite for strategically-located apartment housing. In fact, interest in new rental construction is very strong. Projects by Homestead and by Viner (in Sandy Hill), Lépine (in Overbrook and Kanata), Claridge (in Centretown) among others, will introduce more new rental units than Ottawa has seen in decades.
As in 2015, the condo industry focused on selling out existing projects and keeping inventories as tight as possible. In 2016, eight projects achieved sell-out, two were withdrawn and two new ones were launched. As a result, the number of active new condo projects went from 38 (with a total of about 5,000 units) to 30 (with a smidge over 3,900 units). An active supply this low was last seen seven years ago, in 2010 – it represents six-tenths of the peak supply of 6,400 units observed in 2014. Because the total inventory is smaller, the percentage of the active supply that is sold has reached a record-high level of 76%. This has been the most effective way for the industry to manage what the media has often described as an “oversupply”. There is, in technical terms, no oversupply at all in Ottawa. There is, instead, a high degree of familiarity with many of the projects that remain on the market and are not yet sold out. But we are no longer seeing twelve of fifteen project launches per year, and the sales-to-supply ratio is as healthy as can be in the context of a slower market.
Interestingly, the two big projects that were launched in 2016 were met with strong market receptiveness. This underscores the fact that there remains ongoing interest in new condo projects that can capture buyers’ imagination by their location, design, attributes or amenities.
Of the two, the most notable was DevMcGill’s ArtHaus, an 89-unit project being developed as part of the ArtsCourt expansion, located in the upper floors of a tower that also features a Le Germain hotel on the lower levels. Launched in March 2016, ArtHaus rocketed to almost 85% sales by year-end. The attractiveness of the project lies in its pricing and location (part of a marquee project, two blocks from the Rideau subway station that will open in just over a year, and a rare new offering in the ByWard Market area that until then only had Claridge Plaza or Richcraft units for buyers looking at locating in the neighbourhood).
The other launch was Domicile’s second phase of The Corners, on the revamped stretch of Main Street that now features wider sidewalks, cycle tracks, and new trees. The launch was made possible by the sales success of Phase I, which has only a few units left. The November launch generated lots of interest, but there hasn’t yet been enough time to gauge this second phase’s ultimate success. It is the phase closest to the street and will feature retail storefronts, something the street sorely lacks and can use.
Much of the rest of the activity in the new condo market went largely unnoticed, but deserves mention. The sales champions in 2016, aside from ArtHaus, were Two The Parkway (Morley-Hoppner), Gotham (Lamb), Qwest (Ashcroft), The Bowery (Richcraft), Upper West (Minto), Zibi Kanaal (Windmill), Tribeca East (Claridge) and The Corners on Main (Domicile). Each of those projects sold at least 20 units in 2016, accounting for sixty percent of the year’s total sales.
Morley-Hoppner seems to have found a winning formula to sell condos in the Kanata market, which had thus far been a condo graveyard. Likewise, Minto has experienced strong sales in Westboro, in tandem with its Lansdowne and Beechwood successes, despite slightly higher prices than the Ottawa average. Also in Westboro, Ashcroft’s Qwest is close to being sold out, confirming the market’s appetite for this
neighbourhood despite the project’s now-embarrassing retail vacancies of its prime storefronts. Of the West Downtown projects, Claridge’s Tribeca East and Richcraft’s The Bowery had similar sales performances, each of them touting their proximity to a soon-to-open subway station. And the Zibi project continues apace, underscoring the popularity of its unique heritage site.
At the other end of the spectrum, some older projects had fewer sales because they were close to selling out, but there were a few projects with large blocks of unsold units that have been on the market for a long while and failed to generate significant sales in 2016. There may yet be a further batch of project withdrawals in the first half of 2017.
New condo prices shyly edged up to $499 per square foot including parking, on the strength of the two new launches (each of which priced well above $500) and the selling-out of older projects at lower price points. Ottawa, however, remains a bargain for new condos compared with Toronto and Vancouver (where averages now reach $735 and $1,116 respectively).
Forecast for 2017
The Conference Board of Canada predicts that Ottawa-Gatineau’s GDP will grow by 2.2% in 2017, its strongest since 2010. Its Metropolitan Outlook sees our city emerging from the period of tepid growth that characterized the final years of the Harper government into a more solid period of steady economic growth fuelled by infrastructure investment, a surge in tourism with the sesquicentennial celebrations, and ongoing employment growth in the high-tech sector.
The year will be one of further consolidation in the fundamentals of the real estate market. Rising levels of job opportunities and in-migration will further tighten the rental vacancy rate, lead to another increase in MLS sales, and if interest rates remain close to their present levels, a slightly higher rate of price increases for resale and new homes.
We don’t expect many new condo projects to be launched in 2017. The industry will instead save its supply pipeline for a little longer, to allow prices to rise and the market to further tighten. One notable project launch expected this year isthe highly-visible Mizrahi project at the corner of Wellington Street West and Island Park Drive. This is a niche building that will target a very upscale market, and its performance will serve to gauge the market’s ability to test new price points.
Otherwise, almost 1,000 unsold units remain in existing projects; if each of those units were to be sold in 2017, the resulting annual total would surpass that of the three previous years. Still, the Ottawa market has seeds firmly planted for a rebound in the new condo market. It just probably won’t happen this year. Rebounds usually start with niche projects performing strongly. In 2016 we saw ArtHaus perform strongly. In 2017 we’ll have a chance to see Mizrahi meet the market. The larger builders will wait and see before venturing to launch more mid-market projects.
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Condominium Link 2017
Condominium Link 2016
Condominium Link 2015
Condominium Link 2014