Developers in Toronto are set to add more prime office stock than almost any other North American city in 2014, according to the latest research from commercial real estate brokers Cushman & Wakefield.
According to the report, investors will take advantage of the relatively low borrowing costs in Canada in order to fulfil the demand of global corporations, such as web-giant Google Inc., as they look to expand their property portfolios into new markets.
Over 1.59m sq ft of triple-A office space will be bought to the Toronto market next year, surpassing traditionally dynamic centres such as New York and Chicago, falling behind Mexico City alone in terms of the volume of office space to be made available.
The development boom will be sparked by investments from pension funds and real estate investment trusts, further enhanced by borrowing costs that are in some cases up to two percentage points lower than before the financial crisis struck in 2007.
In December last year, a spike in demand culminated in a group of pension funds paying out a record C$749 per sq ft for offices in Brookfield Place-TD Canada Trust Tower on Bay Street, according to data from RealNet Canada Inc.
Pierre Bergevin, chief executive officer of Cushman & Wakefield Canada, said: “It’s expensive right now and this kind of office space should command a premium for the next few years until much more supply comes onto the market. The Toronto market, let’s face it, is relatively closed.”
The construction of the Richmond Adelaide Centre – developed by Oxford Properties, a subsidiary of Ontario Municipal Employees Retirement System – is the most significant office project scheduled for completion in the coming decade, bringing over 1m sq ft of office space to the market.
The 51 residential condominiums that have been constructed in Toronto’s CBD since 2009 have pushed up commercial real estate prices as trans-national corporations look to tap into the abundant stream of young professionals entering the city.
Canada’s five biggest lenders – currently based in Toronto – control approximately 80% of the nation’s financial assets. At present, there are more high-rise projects under construction in the city than in any other urban metropolis, and the financial services sector has grown to become the second largest in North America after New York.
In contrast to the projected boom in 2014, no new grade-A office space was added to the market during 2012, with only 100,000 sq ft earmarked for completion before the close of 2013. This drove the city’s vacancy rate down as low as 5.1% in 2012, close to the record of 3.4% registered in 2000.
According to the latest Cushman & Wakefield figures, the vacancy rate will ease to 7.6% by the end of 2014. Vacancy rates in New York have witnessed fewer fluctuations, remaining between 7.2% and 7.4% in the same period, with around 916,000 sq ft of office space set to be added by December 2014.
