My friend Danny came into town from NYC for the weekend and he wanted to meet with me to discuss the Toronto condo market. Danny is a U.S.-based investor, but is looking to diversify internationally.

Naturally, I agreed, and we met on a crisp February morning at my favorite coffee shop.

“Matt, what would you tell someone who is completely new to the Toronto market?” Danny asks me over coffee.

I’ve traveled all over the world answering this exact question to investors of all stripes. I began with a macro discussion of the Toronto condo market.

An Introduction To Toronto’s Condo Market

Toronto is one of the most dynamic condo markets in North America. There are many economic headwinds facing Canada, but one bright spot is the outlook of the Toronto condo market. Let us explain.

Stagnant wages, low oil prices, and a weak Canadian dollar all contribute to reduced purchasing power for the average Canadian. Further, with prices of single-family homes in Toronto at record highs, first-time home buyers are increasingly drawn to the affordability of condos.

“A growing gap between the prices of low-rise homes and condominium apartments will likely shift the historical preference that young families have for homes with backyards towards high and mid-rise condominium buildings in the GTA.” – Housing Market Outlook – Greater Toronto Area – Date Released – Fall 2015

Consider that, on average, Toronto condos are half the price of a detached home in the same area. Low-interest rates don’t hurt either and are likely here to stay.

It’s no surprise to us that 2015 was the second best year ever for new condo sales in Toronto.

So what exactly do you need to know about Toronto’s condo market? A lot.

A Trend Toward Condos

“Toronto’s condo market should remain vibrant in the year ahead given continued job growth, low-interest rates and the lack of affordability in the detached property market.” – BMO economist Sal Guatieri

Two of the biggest demographic shifts are solidifying assertions that condo’s will become one of the most popular categories of real estate. First, we have the millennial group who are increasingly wanting to live in the downtown core or trendy neighbourhoods. These first-time home buyers are priced out of single-family homes, for the most part, making condo purchases in key urban areas an increasing reality.

And who are the toughest competition for millennials when buying condos? Their parents!

According to CMHC, Baby Boomers will drive condo sales as they continue to “downsize to smaller homes and look to purchase condo units within easy access to services and amenities.”

The world’s second largest demographic, the Baby Boomers, are retiring at a rate of 10,000 per day. This, along with a desire for simplified or downsized living, is driving this newly retired group to condos in urban centers.

Toronto’s Condo Market: Key Figures And Statistics About

“Affordability concerns will help to keep demand for condominium apartments strong.” – Housing Market Outlook – Greater Toronto Area – Date Released – Fall 2015

“Matt, clearly demographics are a driving force for condo living, but how does this affect the GTA?”

I continued.

In 2015, condo’s accounted for 47% of real estate transactions. In 2005, this figure was 37%.

Danny perked up, I have his attention. I relayed a few more key figures:

• – Annual price growth for condo’s is a healthy 4.7%, which is triple the rate of inflation
• – Vacancy rates are an awesome 1.8%, with the average in Canada at 3.3%
• – In 2015, condo sales in Toronto are up 12% compared to 2014
• – Rents are at an average of $2.37 per square foot across Toronto
• – In the downtown market, year-over-year condo sales in January were up 17%

“So Danny, there is a reason more people than ever are investing in the Toronto condo market,” I concluded.

Danny thanked me and we parted ways, he was clearly happy with our discussion. And, so was I, it was the inspiration for me to write this article.

By: Matt Elkind, CoFounder CONNECT asset management