Commercial sector thrives amid dwindling vacancy rates

Commercial sector thrives amid dwindling vacancy rates

Commercial sector thrives amid dwindling vacancy rates

Toronto’s commercial real estate sector will remain ablaze in 2019.

According to Morguard’s 2019 Canadian Economic Outlook and Market Fundamentals Report, not only is Toronto’s economy on fire, its commercial vacancy rate is very low because of constrained supply and high demand. That, in turn, has put upward pressure on prices.

“It’s a real struggle both in Vancouver and Toronto to find office space,” said Keith Reading, Morguard’s director of research and the report’s author. “Choices are very limited for 10,000-plus square feet and rents are at peak for this cycle. There’s no shortage of capital, which is just a function of supply, and 2018 being a record year for investment will continue into 2019.”

Toronto is easily the country’s safest bet for investment funds, and one reason for that is the city’s diverse economy. Unlike, say, Calgary, where a downturn in the oil and gas sector has a ripple effect, Toronto could withstand a languid industry or two. 

“If you look at Toronto, it’s the biggest economic centre in Canada and also the most stable,” said Reading. “Over time, values will only increase in the commercial sector. You can’t just create another Toronto. It’s a 24-hour, world-class city, so your investment is pretty safe in Toronto. It’s a large, diverse economy and it has a lot of things going for it. If you’re looking for safety in your investment, Toronto is the first place to go in Canada.”

The tech sector, in particular, has taken off in Toronto and appears to be growing faster than even Silicon Valley. According to real estate firm CBRE, Toronto is the fourth-most important tech hub in North America, and while that might not seem especially impressive, consider that it was ranked 12th only two years ago.

“In the last five years, Toronto has created 82,000 tech jobs, more than Silicon Valley and more than any other city in North America,” said Matt Smith, a real estate broker with Engel & Völkers.

While demand for commercial real estate is through the roof in Toronto, finding adequate space is proving difficult for a growing number of companies, and that problem is not expected to abate in 2019.

“We’ve had fairly healthy economic climate in Toronto for the last couple of years,” said Reading. “We’ve seen incredible growth in the tech sector with a lot of shared work spaces. Because of that, coupled with a pretty healthy economy, we’ve run short of office space. There’s some new supply coming, but I emphasize the word ‘coming’—we need it now because we have low vacancy rates, particularly downtown.”