We all know that inflation is a thing right now. Prices are rising. One way businesses can choose to respond to this is through something called "shrinkflation", which the Financial Times writes about here. The idea behind shrinkflation is that, instead of just raising end prices to absorb higher costs, you instead shrink or reduce your product or service offering. Of course, you could also do a combination of both things: increase your price and shrink your offering.

This shrinking can take many forms. A few less chips in your bag. A slightly smaller chocolate bar. Smaller food portions at the restaurant. Or maybe opt-in room service for your hotel room. It can also take the form of less space. Average apartment sizes in most big cities have trended downward over the years for this exact same reason. Developers are working to maintain some kind affordability in the face of rising costs.

I think a lot of people like to scoff at these sorts of practices. Why can't we just build bigger family-sized suites? But the reality is that it is being driven by real market constraints. Without something giving, like suite sizes, urban housing would be multiples less affordable compared to current levels. The developers I know don't have any sort of deep-rooted philosophical aversion to selling 5,000 square foot estates in the sky. The problem is simply that most buyers and renters won't like the sticker price.

Over the past 5 years or so, real estate headlines in the Greater Toronto Area have often focused on the rapid appreciation of low-rise housing. High-rise housing simply wasn’t appreciating at the same rate – at least in aggregate terms.

But 2017 has brought a different story. 

If you look at BILD’s “New Homes Monthly Market Report” (data provided by Altus Group as of July 2017), you can see that high-rise pricing is now on a similar trajectory to low-rise pricing.

Here is that graph:

This sharp uptick in pricing is also apparent when you look at the average price per square foot of new high-rise inventory. As of July, it was $764 psf across the GTA. See below.

At the same time, average unit sizes have also jumped up to 871 square feet. So not only are new high-rise homes becoming more expensive on a normalized basis, they are also getting bigger, which further increases prices.

I recognize that we’re only seeing data up to the end of July, but, from the looks of it, 2017 is shaping up to be an extraordinary year for the condo.

Of course, part of the reason this is happening is because remaining inventory for both low-rise and high-rise product is hitting 10-year lows. We’re back to the topic of supply.

If you’re curious how some of these numbers have changed from the month prior (June 2017), check out this post.

Earlier this week, I wrote about the Charlotte Apartments in Berlin and tried to back into some of the numbers for the project. I wanted to compare the economics behind a mid-rise project in Berlin to one in Toronto.

After I wrote that post I forwarded it to Michels Architecture – who are the architects behind the project. I thought they might be interested in reading about my (crappy) back of the napkin type of assessment and I was also hoping that they might be able to shed some additional light on the details.

Well, they responded and graciously offered to do exactly that. So today I thought I would write a follow-up post with some additional details. I obviously don’t have everything – because they weren’t the developer for the project – but I still think you’ll find the information I got interesting.

The building has a total of 3 parking spots and they’re all on the ground floor (you can see them in this post in the second photo towards the right). They were for the penthouse maisonette/duplex units. This means that there’s only one level below grade and it’s basically for mechanical systems, storage, and waste disposal. So why does this matter?

It matters because it means lower construction costs and the ability to develop smaller sites where you may not be able to properly layout a parking garage without car elevators and other clever strategies. This is possible because, unlike Toronto, Berlin doesn’t have any parking minimums or maximums. 

With respect to unit sizes, the penthouse units are 135 square meters or 1,453 square feet which, according to the architect, are small. From the 2nd to 6th floor, there are 4 units per floor and the sizes are 37 sm / 398 sf, 65 sm / 699 sf, 68 sm / 732 sf, and 81 sm / 872 sf. On the ground floor there are 5 units and they’re at 34 sm / 366 sf (x 2), 42 sm / 452 sf, 45 sm / 484 sf, and 76 sm / 818 sf. I would say that this is comparable to what you might find in a downtown Toronto condo project. Side note: Apparently the smallest units sold the quickest.

As of December 2011, the average sale price was 4,120 € per square meter. At today’s exchange rate, that would convert to $5,815 per square meter or $540 per square foot (in Canadian dollars). If we translate that into 2014 dollars, that’s about $575 per square foot, which would be low for prime locations/buildings in Toronto.

A big thanks to Michels Architecture for providing this additional information. It’s always great to get local insights. I hope you all enjoyed it – happy Friday.

Images: Werner Huthmacher