Looks like Toronto is still the place to be in Canada! - Toronto office rents soar 17.5 per cent and companies are willing to pay the price

Companies appear willing to pay the price to open or expand offices in Toronto’s booming downtown, despite rents that jumped 17.5 per cent last year.

Unexpectedly strong demand for space in the core helped push office vacancy rates down to just 4.7 per cent in 2011. That’s placed Toronto No. 4 among the world’s Top 10 cities seeing significant increases in office rental rates, according commercial brokerage Cushman & Wakefield.

“Toronto has come through an extremely robust period of demand and it has tightened the market to the point where it’s challenging to find the quality locations for companies that are in the market right now,” says Stuart Barron, national director of research for Cushman.

The hefty rent increases not only point to Toronto’s international appeal as a safe place to do business, but a shift in thinking among companies that previously would have been inclined to set up shop in the suburbs, says Barron.

“Companies are more and more of the mindset that the higher cost of downtown real estate is actually an investment in their workforce,” says Barron.

Being downtown means being within walking or transit distance of a whole new pool of young talent that’s quite at home in the glass-and-granite condos that have sprung up by the tens of thousands downtown over the last decade.

“These are the young men and women who will lead businesses in the generations to come,” says Barron. “They want to be part of a thriving business environment, but they like the energy of the downtown and they aren’t interested in commuting to jobs in the suburbs.

“They want to work and play downtown.”

Only the Brazilian cities of Sao Paulo and Brasilia, as well as San Francisco, outpaced the commercial rent increases seen in Toronto. There rental rates were up 24.4, 21.3 and 19.6 per cent respectively, according to Cushman’s annual Office Space Across the World 2012 report.

Vancouver remained Canada’s most expensive office market in 2011 with rents averaging $33.87 per square foot per year compared to the $23.30 in Toronto. That was up just “modestly” from 2010, the report noted.

Montreal saw the second-highest growth in office rental rates, lagging far behind Toronto at 6.1 per cent, said Cushman.

While rent increases in Toronto’s downtown are expected to ease off this year, demand has outpaced all expectations since the 2008 recession, says Barron.

Some 4.7 million square feet of new office space, much of it on the Railway Lands development south of the financial core, was in the works or coming on stream when the downturn hit.

Commercial brokers were bracing for vacancy rates to skyrocket to 14 per cent or more. (A 9 per cent vacancy rate is considered a balanced market, which keeps rents stable.)

Instead, demand remained relatively strong through the recession as Coca-Cola, Google, SNC-Lavalin and a host of professional companies moved some or all of their workers downtown, says Barron.

That’s dramatically different than back in 2000 after the tech bubble burst and some 3.8 million square feet of office space flooded back onto the Toronto market as companies retrenched or collapsed.

Vacancy rates climbed to almost 12 per cent and rents dropped.

The Toronto Star
Susan Pigg      
Business Reporter