Condo market players expect fewer new developments in 2014

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That chill in the air Matthew Sachs felt in late December had nothing to do with the arctic-like temperatures gripping the capital.

Instead, the general manager of Urbandale Construction was getting the cold shoulder from potential buyers at the Ottawa developer’s planned 28-storey condominium tower on Parkdale Avenue.

“There’s a lot of competition, so there’s a lot of choice for people to buy,” said Mr. Sachs, referring to the large number of condo construction projects currently under way or in the works in the city.

“There’s no real sense of urgency. We can take our best guess as to what’s going on with the market. All we really know is, people aren’t really coming through the door the way they were a year ago, two years ago.”

Mr. Sachs’ observations are borne out by the Canada Mortgage and Housing Corp., which is predicting new condo starts in Ottawa will fall from 2,750 units in 2013 to 1,750 this year – a whopping 36 per cent decline.

CMHC senior market analyst Sandra Perez Torres said the city’s condo market is saturated right now, and builders are holding off on launching new developments until some of that unsold inventory is snapped up.

“We’ve seen such a high level of construction, it will take a couple of years to absorb those apartments,” she said in an interview late last month, noting 23 per cent of Ottawa’s completed condo units are still waiting for buyers.

John Herbert, the executive director of the Greater Ottawa Home Builders’ Association, echoed that view.

“We have seen a bit of a decline in the condo market over the last few months, and I expect that trend will probably continue,” he said. “The condo market may have gotten a little bit overheated and so there may be a brief cooling period – a year or two where things moderate slightly on the condo side of things.”

Still, there are a few signs of life in the capital’s condo landscape.

Toronto-based Mizrahi Developments, for example, announced in mid-December it was asking the city for permission to erect a 12-storey mixed-use tower on Wellington Street West that would include commercial space on the ground floor and 114 high-end condo units on the upper floors.

The CMHC’s Ms. Perez Torres said more upscale units, such as those proposed by Mizrahi, appeal to baby boomers who have decided to downsize.

“The age group that is most active in Ottawa is the empty-nesters,” she said. “They’re selling their big houses … and they’re getting a lot of equity from their homes. As a result, they’re buying high-end condos. It’s just amazing, the apartments that they’re putting out there for this age group.”

Urbandale is also targeting empty-nesters with its planned development at 99 Parkdale. Its units will be at least 750 square feet, as opposed to the 500- to 600-square-foot apartments common in many other new buildings.

“So many of the condos were going smaller, smaller, smaller units, which typically equates to investor units,” said Mr. Sachs. “People don’t buy those to live in, they buy them to rent out. We, by intention, gave slightly larger floor plans, full-size appliances, a full-size kitchen, to hope to make a bit of a niche. It’s all a process. We’ll see how it plays out.”

The other group that makes up the bulk of Ottawa’s condo buyers is relatively wealthy young professionals who want an urban living experience. Mr. Herbert said he sees some potential for growth in that sector.

“As those young professionals get married and start to have kids, they’re going to move back to the suburbs,” he said. “I think we’re going to start to see some turnover among the young professionals in the inner city.”

But in the short term, the overall sales outlook for condos is still bleak. Downsizing in the federal civil service might have something to do with it, Mr. Sachs said, but he was reluctant to point to any one factor to explain it.

“The hard thing is, you don’t get to interview the people who don’t come through the door,” he said.

“All I can say is, we’re not seeing the traffic through the door that we’d like to see. We’ve been around for 30 years. We’ve seen the cycles. All you can do is adjust.”

Overall, the local home construction market had a better year than initially expected in 2013, Mr. Herbert said, adding continuing low interest rates helped the market rebound from a sluggish first couple of months.

“There was a fair amount of pessimism last January and February, and things did start out slowly,” he said. “As the year progressed, sales gradually improved. We’ll probably finish out about 500-600 units ahead of (2012).”

The outlook isn’t as rosy for 2014, Mr. Herbert conceded, particularly in the condo market.  

“Overall, it looks like we’re going to be experiencing a bit of a slowdown (this) year,” he said.