A New Bay Street?

[Markster]

Is this imaginary?

[Office vacancy up to 10.3% from 7.6% YoY, July 2009-2010]

Considering how many large office projects finished up in that time period, (BAC, RBC, Telus, et al) it would make sense that there would be a spike in vacancy as all the new tenants finish moving into their new digs. The question is how long it will take for the vacancy rate to go back down.

 

[taal]

Is this imaginary?

Actually is it yes - that article is old and the opposite actually took place - if you recall about 6 months to 1 year ago a ton of articles came out about how our vacancy rate would approach the middle teens by the start / middle of 2011 (due to all the new construction).
It never materialized ... at least downtown, the financial sector took on a lot of new space in the core so Q3 2010 was extremely high growth wise - probably so much so that it's not sustainable.

 

[taal]

Thanks everyone! Great replies so far, I'll touch on a few points.

Regarding Calgary - I think it'll keep growing and hopefully continue to expand in other areas. But in terms of replacing Toronto I don't think that'll ever happen (well in the next 30 years - know one can predict the future). But let me elaborate - it won't replace the GTA - i.e. if you compare regions to regions. The Toronto region has seen a huge amount of growth over the last decade - mainly the 905 yes (and more recently the downtown core) - a lot of people compare the 416 to Calgary it self but if you compare the entire Toronto region I'm sure Calgary has grown faster due to energy sector but I bet it's not much faster - again, comparing region to region!

Calgary has always been very core central (which I love and think is great) it does have suburbs but in terms of office space they pale in comparison to ours even if you factor in the population. The Toronto region is extremely popular for finance (of all sorts) and the pharmaceutical industry (some people forget this but this has always been a large part). Also we do have growing hub of tech companies (most of the American ones are also located in Markham). A lot of people think of waterloo as the tech center of Canada but in many ways it's Markham.


A lot of you seem to associate office location and where people decide to reside - I think this is probably very accurate. So in some senses we're agreeing that a lot of the outer 416 is losing the middle class - which we know is the case (although this is happening in parts of the 905 as well). But I do wonder if tax is one of the main reasons still - as driving to say NYCC / SCC is still easy for someone in Markham give or take.

 

[CN Tower]

Actually is it yes - that article is old and the opposite actually took place - if you recall about 6 months to 1 year ago a ton of articles came out about how our vacancy rate would approach the middle teens by the start / middle of 2011 (due to all the new construction).
It never materialized ... at least downtown, the financial sector took on a lot of new space in the core so Q3 2010 was extremely high growth wise - probably so much so that it's not sustainable.

?

The article is 4 months old. July 30, 2010. What are you talking about? The office market sucks.

while a major glut of new office space over the past year also contributed to the spike.

Perhaps you need to look up the word glut.

 

[MisterF]

Is this imaginary?

No, and neither is this:

Downtown vacancy fell to 5.8 per cent from 6.6. per cent in the past quarter, according to commercial real estate analysts at Cushman & Wakefield, thanks to a “tremendous acceleration” in leasing activity. City-wide, vacancy decreased to 7.7 per cent in the third quarter from 8.1 per cent in the second quarter.

http://www.theglobeandmail.com/report-on-business/what-recession-businesses-snap-up-toronto-office-space/article1706087/

Hi, thanks for the stats, however, I was actually asking how many of CANADA'S top 500, 1000 companies or the ones trading on the TSX are located in downtown Calgary only vs downtown Toronto only (i.e. not metro Calgary vs metro Toronto). I know Toronto's power is several times higher than Calgary's but with the population being five times higher (metro areas), Calgary is still ahead in per capita terms (and the gap is widening). Another point to note is that Toronto has 75-80 million square feet of office space but Calgary's downtown including what they call "beltline" (think West of Uni, East of Yonge type situation), along with the construction that has taken place in the last five years, actually has 45-47 million square feet of office space (meaning Toronto downtown only has 60% more office space than Calgary downtown).

Do you have a source for that 47 million number? According to the Financial Post 500 largest companies in Canada, 102 are in Toronto and another 70 are in the GTA suburbs. 72 are in Calgary, which includes its suburbs in city limits. Yes Calgary punches above its weight, but that always happens when there's an oil boom. That's just the nature of the beast. About three quarters of its head offices are energy companies so it's a bit of a one trick pony.

The fact that you say to look at metro areas instead of downtowns is my main point, in that, the non-downtown areas (almost exclusively 905) have added office space at a far faster clip than what we all would like to see - downtown, especially buildings connected to the PATH!

I remember reading somewhere that in the 1990s the GTA had added absorbed 27 million square feet of office space but I have a feeling only 4-5 million of that was in the downtown - imagine having even 10 million of that in the core instead - imagine the synergy, the energy, the new skyscrapers, the skyline, the power....

Yes that's true, but it's also true that the prestige is in the Financial District while cost conscious employers locate in the suburbs. In any case, downtown hasn't been stagnant - employment has been rising along with the new office space. Both the city and the province have implemented tax policies that are business friendly (at the expense of individuals) so it's not like nothing is being done. Unless we strike oil in Ontario then Calgary will always be ahead per capita, and nothing that governments can do will change that.

 

[taal]

?

The article is 4 months old. July 30, 2010. What are you talking about? The office market sucks.



Perhaps you need to look up the word glut.

It really doesn't .... the market out perfomed any and all predictions ... there's been a huge ammount of absoption in space - most of this has actually been in the core. And yes 4 months ago is a while in this sense as it was Q3 that was very much stronger then anyone predicted ... I'll include some links in a while.

 

[GraphicMatt]

I generally agree that the situation in the outer 416 is troublesome, especially as there's really no reason why a business would set up shop in, say, North Etobicoke over Mississauga when the tax environment in the latter is much better than the former. But painting it as only 416-vs-905 is a bit simplistic, isn't it? Surely some of the 905 municipalities are doing much better than others when it comes to attracting real commercial development.

 

[taal]

Yes that's true, but it's also true that the prestige is in the Financial District while cost conscious employers locate in the suburbs. In any case, downtown hasn't been stagnant - employment has been rising along with the new office space. Both the city and the province have implemented tax policies that are business friendly (at the expense of individuals) so it's not like nothing is being done. Unless we strike oil in Ontario then Calgary will always be ahead per capita, and nothing that governments can do will change that.

I don't think the tax policies are anywhere near enough for Toronto i.e. the 416 to compete with the 905 ... now in terms of attracting companies from outside the GTA this isn't an issue i.e. our tax rate and climate is still very attractive from an international prepsective and even throughout Canada. But after a company decides to locate in this region the question becomes what specific area do they chose ... some will go downtown as they need to be located there but anyone else has a lot of variety ... and over the past long while it seems they pick the 905. This also applies to local companies expanding.

I think it comes down to our commercial tax rate ... it's a lot higher ... to give you an idea:
(M = Mississauga, T = Toronto)
Total property tax (including provincial education component):
M COM: 2.14%
T COM: 3.59%

Provincial education component:
T = 1.66
M = 1.29 (this is from Markham actually but the 905 is similar throughout).

So about 170% greater.

 

[taal]

I generally agree that the situation in the outer 416 is troublesome, especially as there's really no reason why a business would set up shop in, say, North Etobicoke over Mississauga when the tax environment in the latter is much better than the former. But painting it as only 416-vs-905 is a bit simplistic, isn't it? Surely some of the 905 municipalities are doing much better than others when it comes to attracting real commercial development.

tax rates - commercial tax rates, are very similar across the 905 so it would come down to other factors in these cases ... probably land prices for one and accessibility ... hence we've seen a lot in Markham (Hi-way 7 - 404 corridor) ... the 401 in Mississauga. These are the two main areas ... there's a lot of talk about VCC (Vaughan city center) and there's been some office growth lately but not much compared to the other areas (more industrial growth here).

MCC has seen little to none - similar to say NYCC ... so the other factors are indeed important i.e. they're not leaving NYCC / Toronto and looking for something similar in say MCC.

 

[GraphicMatt]

Is Milton seeing much commercial growth in relation to its crazy fast residential growth?

 

[taal]

Is Milton seeing much commercial growth in relation to its crazy fast residential growth?

I don't think so ... there have been a bunch of new large office campus (a lot of call centers) in the western edge of Mississauga but I think this ends before Milton. I think a lot in Meadowvale (is that part of Mississauga) ? - but it's possible they're seeing a lot more in the way of industrial growth - but this typically amounts to warehousing and don't employ many people given the size of the facilities.

 

[CN Tower]

It really doesn't .... the market out perfomed any and all predictions ... there's been a huge ammount of absoption in space - most of this has actually been in the core. And yes 4 months ago is a while in this sense as it was Q3 that was very much stronger then anyone predicted ... I'll include some links in a while.

What are you a leasing broker? LOL. You are very wrong my friend:

Toronto’s overall office vacancy rate inched upwards in the third quarter, rising from 9.1 to 9.4 per cent, year-
over-year. The overall availability rate of the industrial sector dipped from 7.8 to 7.0 per cent, year-over-year.

www.cbre.ca/.../Q32010CBRENationalOfficeandIndustrialTrendsReport.pd

Stronger eh? Don't think so! The market is pure musical chairs.

 

[taal]

What are you a leasing broker? LOL. You are very wrong my friend:



www.cbre.ca/.../Q32010CBRENationalOfficeandIndustrialTrendsReport.pd

Stronger eh? Don't think so! The market is pure musical chairs.

It's not musical chairs a lot of tenants are expanding and taking on more space in the new developments.

Download the CRBE report here:
http://www.cbre.ca/EN/Our+Offices/Ontario/Toronto+Area/Toronto+Downtown/Market+Reports.htm
But a quote:

The Central markets were not as strong in the third quarter, although the recent
rebound was never expected to be sustainable. The market closed the third
quarter with a healthy 116,073 SF of positive absorption, down from 384,278
SF last quarter. Deal velocity has tapered off as the pent-up demand from 2009
has been absorbed. The vacancy rate declined for the second consecutive
quarter, down 20 bps to 6.9%. All of the positive absorption came from the
Greater Core and Downtown South where there was 226,647 SF and 65,383 SF
of absorption, respectively. Absorption is expected to decline in upcoming
quarters as more tenants migrate to new builds.

So note that Q2 was the very strong one that was not expected - growth is less this quarter but there's still positive absorption.
Also note that overall vacancy rates are down here not up - in the core (and by core I'm referring to all of central Toronto here) ... you're looking at the overall vacancy rates when you say they're up across the GTA.

Specific quote regarding the financial core in particular:

The Financial Core recorded an expected increase in the vacancy rate to 7.3%
in the third quarter of 2010. Coupled with this was 41,769 SF of negative
absorption, which reflected the continued migration of tenants out of the
Financial Core to the new builds in the Downtown South and Greater Core
submarkets. Further moves will take place in the upcoming quarters, driving
vacancy back up. The FIRE sector continued to provide positive momentum to
the market, although less than in previous quarters. The sublease rate has also
fallen for the fifth quarter in a row and now sits at 12.7%, the lowest
percentage since the third quarter of 2007.

Vacancy rates here increase as this doesn't include the south core (considered part the greater core) where some tenants are moving ... and expanding.

I don't think you quite understand what was being predicted here about a year back ... with the recession and all the new space a lot of new space it was expected we'd see no further expansion into the new buildings as many were only 60/70% leased at the time - but now they're all 90% and there's been moderate expanasion in the old stock. Note that there's still a lot of space left in some of the older buildings that tenants are leaving.

The rest of the GTA (including the 905) actually fared quite a bit worse over the last year or so. But I suspect things will improve there and the downtown core will stabilize.

But having said that I don't see all the predictions of new office buildings in the core coming to fruition ... as a lot of older stock exists. The only way I can see it happening, and this is possible, is scenarios where large firms commit to moving and expanding. Tenants clearly prefer the new towers - they're likely going to be nearly 100% occupied by the end of 2011. So the real test will be how the older stock fair throughout 2011.

I'm not saying everything is rosy but things are fairing a lot better then many had predicted.

Again this I'm only talking about the core - my whole point in this discuss was the outer 416 anyway.

 

[highlife]

Barring something out of left field (like a massive change in commuter rail lines and destinations away from Union station) the Financial District is going to remain the prime office site in the GTA. Bay Street itself is already not as important as it once was with new developments in the area so things are spreading out, but if you guys think North York or Missisauga will become anything more than where back-office support is located then you're deluding yourselves. There are huge advantages to being located downtown - transportation, the PATH, proximity to support services like law firms, fancy restaurants - and the only advantage to being anywhere else is cost and maybe a short commute for the lucky few who live nearby. Anyone else loses the benefit of the subway or GO train, and anyone with in-demand skills is liable to just quit if a company tries to move offices. Most of the high-level executives I know either live in a nice neighbourhood in Toronto or sometimes Oakville. Mississauga or York Region are for the poor schmucks who can't afford a house in the city.

Just to give you a sense of perspective, an office on Bloor Street is reasonable but considered far away because it requires a cab or subway ride. An office at say Yonge & Eglinton implies that a company is a two-bit operation and doesn't care about being isolated from the rest of the industry. Even non-PATH accessible office space is a big minus because most people expect to be able to go to a meeting without putting on your winter garb.

Agreed. i've worked in the financial district my whole career. i've turned down financial jobs that are based outside the core (seriously). Granted Yonge & Shepp may have Invesco Trimark, OTPP, OMERS, but T]the heart and soul of decisions made in Canadian finance is in the downtown core. But i stress the financial district is home of the banks, insurers, investment firms, and ancillary services. I don't expect the HQ of GM, Best Buy, IBM, or Manufacturing firms to be located in the core (except for mining companies, considering many are based in the core)

I've worked briefly in a suburban outpost for a Canadian bank in the past and boy oh boy the atmosphere, pace, and even "business style" is light years behind the core.

Going back to the original question. A Bay street address is less significant now because the financial core goes beyond the stereotypical "Bay St". The northern boundary is dundas south to gardiner (the area around ACC is getting commercial), west to spadina, qne east to church. i'm willing to stretch the north boundary to College and even Bloor but the financial district has always been "downtown". More specifically, if you're connected to the path, then you're considered in the financial district.

 

[Coltaine79]

A personal disclaimer (again) in order to prevent bashing and hatred: I like Toronto and am planning to move there so I'm not against anything in Toronto; I want the GTA, particularly the City of Toronto, to prosper! I bring up Calgary because I think it's more powerful than people in the East like to admit and what gets me is the denial of the fact that it could become a serious contender to Toronto's numero uno position (let's not be like the sleeping hare)!

Don't worry, I don't think you'll see any hatred towards you. Not when you guys have a mayor who's the envy of those Torontonians who aren't NASCAR fans. :/