Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: hard costs

  • The most expensive city in the world in which to build

    Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.

    This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.

    Now, I’m not exactly sure what this number includes. But I’m assuming it is only direct construction costs and doesn’t include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things — including the cost of new housing — can quickly escalate.

  • Current state of Toronto’s new condo market

    Ben Myers of Bullpen Research & Consulting was recently interviewed by Newinhomes.com about the state of Toronto’s new housing market. Ben is always interesting. And these are the sorts of things that I read in my spare time. So here’s an excerpt:

    The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn’t be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.

    This data was taken from BuzzBuzzHome and — by “popular new condo floor plans” — I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it’s a good indication of buyer demand.

    Here’s another quote that stuck out:

    Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices – this cost-push inflation is passed on to consumers.

    That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it’s pretty much a floor.

  • Some tweets about construction costs

    Today was the 2019 Land & Development Conference here in Toronto. I was on a panel in the morning about Proptech. I then sat in on a discussion about construction costs. But after that I had to get back to the office to prepare for a couple of meetings.

    Here are my tweet takeaways (from the back of the room) during the construction cost session. You may need to click through to see the full thread.

    The construction cost escalations that we have seen over the last 2-3 years have had a significant impact on new construction in this region. Niall Finnegan’s view is that we are 85% of the way through this “storm.”

    From his experience, it takes 18 months or so for hard costs to respond to changes in demand. And so the storm we are currently in is a result of elevated condo sales from 2017-2018.

    The general consensus from the panel was that costs should start to moderate sometime soon, though maybe not this year. Nobody really knows when that will happen. But if/when hard costs do adjust, it typically happens quickly.

    One comment that didn’t make it into my tweets, but that I found interesting, was about how uncertainty and volatility in the market — like what we are seeing today with construction costs — could actually stifle innovation.

    Because it creates additional project risks, it limits people’s appetite for other kinds of risks — like trying new things. I can see that.

  • Construction costs are no joke right now

    I don’t know what it’s like in your market, but everyone is talking about it in the industry here in Toronto. Combine these rapidly rising hard costs with higher development charges and inclusionary zoning and you get significant upward pressure on condo prices and apartment rents. 

    This is also one of the reasons – perhaps it is the main reason – why you’re seeing some projects get cancelled. These are projects that maybe sold in one market (lower revenues) and are now trying to build in another (higher costs). The math no longer works. Sorry.

    I mention this today not to complain, although I’m always up for a good industry commiseration over beers, but because I often hear people lament that Toronto needs better design. Why aren’t developers using triple-glazed windows? Why aren’t developers thermally breaking the balconies?

    I will always advocate for better design. That is core to my belief system. But everything costs money. There are very real limits in this equation. And markets have a funny way of telling you exactly what those are.

    Photo by Filip Mroz on Unsplash