Condo market still ‘challenging’ for builders despite rising starts, Claridge exec says

May 16, 2023
3:54 PM
ET

Organizations: Canada Mortgage and Housing Corp., Claridge Homes

People: Neil Malhotra

Claridge Homes chief financial officer Neil Malhotra said higher mortgage rates, rising construction costs due to inflation and a new bylaw that hikes the fees developers pay to the city in lieu of parkland at highrise building sites have combined to make large-scale development projects a risky proposition.

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Ottawa remains a “challenging” market for new condominium construction even as the number of condo starts in the capital hit a record high in 2022, one of the city’s most prominent developers says. Pent-up demand for housing spurred construction of nearly 3,000 condo units in Ottawa last year, according to the Canada Mortgage and Housing Corp.’s latest Housing Supply Report released last month. With larger houses out of many buyers’ price range, the agency said “a portion of demand shifted to less expensive homes, such as condominiums.” But Claridge Homes chief financial officer Neil Malhotra said higher mortgage rates, rising construction costs due to inflation and a new bylaw that hikes the fees developers pay to the city in lieu of parkland at highrise building sites have combined to make large-scale development projects a risky proposition. “There are a lot of factors that are not pointing in the right direction these days to say, ‘That project is going to start next year,’” Malhotra told OBJ this week. Malhotra also said the shift to hybrid and fully remote work during the pandemic likely made some would-be condo buyers rethink their desire to pay more to live closer to the office. “Let’s be honest – there’s still less demand to live downtown with work from home,” he said. “We’re seeing OK interest in owning (condos) downtown, but it’s not like it was pre-pandemic.” At the same time, Malhotra said Claridge is experiencing “pretty good takeup” on its rental projects as the city’s apartment vacancy rate dropped to 2.1 per cent in 2022 from 3.4 per cent the previous year. The ongoing flood of demand for rental units convinced the developer to resurrect plans to build a 30-storey residential tower in Hintonburg as a rental complex rather than a condo. The company made headlines last September when it announced it was scrapping the 262-unit Claridge Hintonburg highrise at 1040 Somerset St. W. after it managed to pre-sell only about 20 per cent of the suites despite marketing the building for 18 months. Claridge eventually decided to relaunch the project as a rental development and started construction late last year. Malhotra said the company made “a couple of adjustments” to the proposal, such as reducing the amount of parking, and believes the project now “makes sense” on a “long-term” financial basis. Meanwhile, the firm is adding more potential rental projects to its growing pipeline of development proposals for the downtown core. Last month, Claridge filed an application with the city for a 27-storey highrise on Gloucester Street near the corner of Metcalfe Street that would include 315 residential units and about 1,550 square feet of ground-floor retail space. Malhotra said the units would likely be marketed as rental apartments but could be sold as condominiums “depending a little bit on what market conditions are once we have approvals and once we’re ready to start.” The proposal calls for 98 underground parking spaces, including 68 for residents. That’s well below the 152 residential parking spots required under current zoning bylaws, but Malhotra noted that there is “a lot of secondary parking” in the surrounding neighbourhood. “We’re finding renters are more so coming without a parking requirement,” he added. “If it was to switch to a condominium, we probably would look at a little bit more parking.” The site is a block north of a parcel of vacant land at 96 Nepean St. that Claridge has been sitting on for years. The developer submitted plans to build a 27-storey, 201-unit condo tower on the property more than a decade ago. Council approved the proposal, but Claridge has yet to put shovels in the ground as it continues to assess whether the building would be better suited to rental apartments or condos. “These things are complicated,” Malhotra said. Despite the current market headwinds, Claridge is always scoping out development opportunities in all parts of the city, he added. “We look at every opportunity on its own merits,” Malhotra said. “I’m not out there saying I need to have a piece of land in (a particular) neighbourhood. Everything that comes across my desk, I look at.”