If You Build It, Will They Come?
The following is an article written by Colliers International and shared by Jeremiah Shamess (@JShamess) – Colliers Redevelopment Land & Investment Wiz. The article is an excellent piece on the growth of Toronto in the last few years. Enjoy!
2013 is upon us and already the press is already pontificating the change in the residential market in Toronto – especially on Condominium developments. For better or for worst, high density land is still a scarce product in downtown Toronto and many last minute trades in Q4 attained to this. For now the attention (both media and CRE) has shifted to Office Development. From First Gulf’s King East project to Allied’s King West and everything in between, Toronto has seen some of the most land/redevelopment office building development since the late 1980s. A report by our research department outlines exactly what is happening:
It is no secret that Toronto is experiencing a “building boom”- there are currently more construction cranes in Toronto than any other North American city. While the majority of the cranes account for residential development, there are some significant new office developments on the horizon, which will be a welcome addition to the tight office market. Currently, the vacancy rate for the Downtown market is at 5.1 percent, the lowest recorded since 2001 when it reached an all-time low of 4.0 percent.
The last significant development in the Downtown Core was nearly two years ago; the PwC Tower at 18 York Street, which was largely pre-leased prior to construction and fully leased by the time it was ready for occupancy.
In the last five years, 6 buildings (including the PwC Tower) have been built, a total of 4.6 million square feet, all with little or no availability upon their completion.
Currently, there are 8 office developments under construction in the Downtown market, which will add a total of nearly 5 million square feet to the inventory throughout the next three years. A considerable amount of that space has already been leased. In addition to the 8 buildings mentioned above, there are another 15 potential office development sites that are actively marketing pre-lease opportunities.
Residential development has been rampant with the growing trend of the younger generation wanting to live and work downtown. The shorter commute time and the ability to travel via public transit is a large draw for many employees, and not just the younger generation entering the workforce. There has been an increase of companies relocating to the downtown core in the last few years, most notably Google, Coca-Cola, and TELUS.
The buildings currently under construction equate to approximately 7 percent of our inventory. In comparison, Downtown Manhattan has a vacancy rate of 16 percent and currently has 5.2 million square feet under construction, equivalent to 4.7 percent of their current inventory. The Boston market has a current vacancy rate of 14.0 percent and has nearly 2.5 million square feet currently under construction, equating to 4 percent of their current inventory. If space is being built with vacancy rates at 14 to 16 percent, obviously the demand for the brand new high quality space does in fact exist in any market.
Colliers International currently tracks 75 office markets in North America. Toronto ranks 7th as having the lowest vacancy rate. Of the top 10 markets with the lowest vacancy rate, 8 are Canadian markets. This helps support that Canada’s economy continues to be strong, and commercial real estate is far more competitive here than in the United States.
The last 5 years show an average annual absorption of nearly 1.3 million square feet, and Toronto has added an average of 1.1 million square feet of new supply to the market throughout the last five years. If this is the level of activity the market experiences during a “recession” period, we should buckle up, as this will be quite the ride.
