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Kate Watson detects a growing phenomenon in Toronto's neighbourhoods: "It's the Brooklyn effect."

In Ms. Watson's view, real estate values in gritty, downtown neighbourhoods are closing the gap with more tony areas nearby.

The agent with Bosley Real Estate Ltd. points to the Junction Triangle, for example, where many real estate watchers talked about a house on Perth Avenue that caused a 32-offer frenzy and sold for $848,625. Yet Ms. Watson finds the $1.325-million asking price on a converted munitions factory on nearby Wallace Avenue even more astonishing.

The hysteria on Perth was simply a result of the scant listings in January, she reckons, but the eye-popping price for the house on Wallace shows that Junction Triangle prices are catching up with neighbourhoods that used to be considered more desirable.

Houses routinely sell north of $1-million in Seaton Village and Riverdale, but now Parkdale, the Junction, and the Junction Triangle are seeing seven-digit listings – mostly for laneway houses and architect-designed modern dwellings.

Data from Realosophy reveals the rising fortunes in neighbourhoods on the Bloor and Dundas West corridors: Between 2008 and 2013, the average price increased 38 per cent in Seaton Village, 35 per cent in the Junction and a whopping 65 per cent in Parkdale South. By comparison, prices in Rosedale increased 13 per cent.

Today, buyers with deep pockets are willing to put cash into a singular property in a funky area rather than maintaining their investment in an established enclave.

"To me, it seems mind-boggling that somebody with that kind of money to spend would buy there," says Ms. Watson of the Junction Triangle. "It's very industrial there."

While the interior of the renovated loft is cool, she says, there are stretches along some of those streets that haven't changed much since the area's smokestack days.

As in Brooklyn, however, the industrial-age water towers and refurbished brick warehouses are admirably authentic. Art galleries, and bars and restaurants, such as the Farmhouse Tavern, are a destination.

"It's cool and interesting for their friends to visit.," says Ms. Watson of the arriving denizens. "It's the new Toronto."

Transit is also key. The Union Pearson Express rail link is under construction in and around the Junction Triangle, but any neighbourhood along the Bloor Street corridor is desirable for its access to the subway.

As a result, an established street such as Major, between Bathurst and Spadina, no longer commands the same premium it once did over Perth or Margueretta to the west.

She says young hipsters and first-time buyers are partly driving the trend but they don't typically have much money to spend on real estate. Downsizing baby boomers often have the cash and a yen for walkable neighbourhoods that offer a bit of adventure. "There's a certain buyer that obviously has the money and they don't want to live in Forest Hill or Rosedale or at Yonge and St. Clair."

Ms. Watson notices that the yearning for authenticity extends to the interiors of these older houses. At one time, buyers would immediately modernize by ripping out elements such as highly-decorative ceramic tiles in an area such as Little Portugal. Increasingly, the contributions of immigrant communities are a treasured aspect of a neighbourhood's heritage. "It's part of the history of Toronto and now people see it as something worth preserving."

Richard Silver of Sotheby's International Realty Canada is the listing agent for the former armoury on Wallace. The three-bedroom, 3,400-square-foot interior is like a large loft, with hardwood floors and 11-foot ceilings. "The high ceilings and the open space make it amazing."

He says choosing an asking price was a bit of an art. "It's very much an individual property. We had to go throughout the city and find houses in back lanes."

The house on Wallace is not actually in a laneway but it has that kind of feel because of its location and private drive, says Mr. Silver. No other buildings overlook it and the private second-floor terrace is sheltered from the view of neighbouring houses. It hit the market about a month ago, he says, and the people looking at it so far have been entrepreneurs and creative types.

Mr. Silver says a studio space attached to the main house has a small kitchen and could be rented as an apartment or office. The house also provides a good live-work separation for someone who wants to work at home, he adds.

He isn't certain that there is any levelling of prices across the downtown. The more posh areas are still seeing prices climb. He notes that a Cabbagetown property recently sold for a previously-unimaginable $2.4-million.

But he does think builders and architects are more willing to build a high-end house that stands alone among its neighbours. "A lot of the properties that I deal with are very unusual so they set their own prices, really."

Paul Johnston, an agent with Right at Home Realty Inc., often sells houses that stand out from the streetscape.

He is currently selling a detached live-work building by Kohn Shnier Architects on Dundas Street West near Claremont with an asking price of $1.869-million.

"A few years ago, that was nowhere and now it's the epicentre of this terrific and vibrant Dundas West neighbourhood. Lo and behold, up pops in the middle an architecturally dynamic space. It's challenging because it's such a different space."

The main floor offers a storefront, which will likely appeal to a retailer or an entrepreneur with quite a refined offering, he says. "Wal-Mart ain't moving in. They're not interested."

Mr. Johnston thinks that various hoods across the downtown still attract different people depending on the taste of the buyers and whether they prefer Chinatown and Kensington Market, say, to Roncesvalles.

"Certainly, our neighbourhoods haven't lost their distinctive appeal," he says. "There are definitely still flavours."

He does see that neighbourhoods such as the Junction were once ranked as a fifth choice and now they have vaulted to No. 1 for some buyers. "Some of the traditionally mildly-impoverished, blue collar neighbourhoods are seeing a huge rise in house prices."

Mr. Johnston is selling units at Duke, which is a condo building planned for the Junction. People like the area for its housing stock, access to transit, and indie bars. In the showroom, the model finishes include an old Spanish tile. One visitor reminisced that his grandmother's cantina had exactly the same tiles.

"There's more of a sensitivity to the finer-made things of generations gone by," Mr. Johnston says of the fascination today with all things Spanish and Moorish. "There's an appreciation of the finely-crafted. People are interested in the provenance."

At the same time, buyers are not turning their back on Modernism. "There's room for both," Mr. Johnston says. "I think they can live together."