A recently released study by real estate company Jones Lang LaSalle warned commercial tenants in Toronto that rental rates could spike up by as much as 50 per cent over the next 36 months.
The report cited ever-increasing property values and tight rental supply as the main drivers of the projected development. Currently, rent for “Class A” space in Toronto sits at $59.17 per square foot, and this rate is expected to grow to $88.76 per square foot by 2020.
“The current environment is the perfect breeding ground for rental growth, and allows Toronto to catch-up with the major U.S. cities,” the JLL study stated.
“Three favorable factors are influencing rental rates: A limited supply in the market and a conservative and risk averse ownership profile, immigration and the on-going demographic change throughout Canada will result in higher levels of office space demand over the next three to five years and yield preservation tactics as the cost of long-term money begins to climb.”
This is a natural outcome of the currently strong inbound flow of investment towards downtown core markets nationwide, according to JLL Canada chief executive Brett Miller.
“In all the major markets across Canada, Montreal, Toronto, Vancouver and even Calgary we see stronger demand,” Miller told the Financial Post.
2016 saw $34.7 billion in commercial property sales nationwide, which JLL deemed a record high in its report. A significant proportion of this activity was fuelled by foreign investors acquiring an ever-increasing number of properties in Toronto and Vancouver.
“With only one significant development expected to be delivered this year in downtown Vancouver, rents will push upwards strongly as demand outstrips supply,” the study concluded.
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