The historically low interest rates currently prevailing in Canadian markets are stimulating a fresh trend in the real estate sector: business owners now preferring to own their office spaces rather than leasing them.
In an interview with BNN
, Steve Gupta of The Gupta Group and Scott Chandler of Colliers International discussed the emerging “office condo” movement in Toronto and Vancouver, and how it would affect Canada’s commercial real estate markets.
Gupta said that the trend would not be limited to the country’s most in-demand cities, and it would eventually spread to other metropolitan areas as the arrangement is too much of a bargain for businesses to ignore.
“For a lot of small- and medium-scale companies, it makes much more sense for them to own their office spaces because it gives them stability of rent and they can borrow money at low interest rates. That’s what’s driving [ownership], and the power of the location always helps them,” Gupta said.
“In rental spaces, they could be bumped out five years later, and they don’t want to invest that kind of money only to move out later. Ownership is an investment on the future of their businesses, the same way you buy a residence as an investment on the future of your family,” the CEO explained.
“With a good credit rating, I think it makes tremendous sense for people to own. And you can see this all over the world especially in Europe, where people can own their offices. You’ll never have to worry about moving or being bumped out if somebody else needs space next door,” Gupta added.
Chandler agreed with this assessment, noting that the trend has been gradually growing since Colliers began tracking it in Toronto and Vancouver around 6 years ago. He argued that office condos would remain in the scene for the foreseeable future, especially since more and more savvy investors are seeing these cities as “entrepreneurial markets” with plenty of opportunities for capital gain and yield.
“It certainly plays a part. We don’t track exactly how much, but it certainly is part of it,” Chandler said of overseas investors’ role in the phenomenon, citing Colliers findings of 26 per cent of investors in Toronto being of foreign origin.