GraphicMatt
Looking forward to a FRESH START for Toronto
I do think it's easy to frame this argument as being about downtown versus the suburbs, but in reality I think it's about Toronto's inner suburbs versus the 905 suburbs.
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- Thread starter kettal
- Start date
Glen
Senior Member
There are countless reports that finger taxes as the determining factor. Furthermore, commercial land in most of Toronto is cheaper (with some exceptions). The city of Toronto contracted Hemson Consulting to look into the issue they found .........
The comparison is for developing a 10 story , 100,000 sq. ft. office on 3.8 acres of land. The hard construction cost are the same for each location. The largest differentials are land and development fees. In Mississauga, the land is 250,000 more and the development fees are 800,000 more. The net cost per sq. ft. to develop is $164.06 in Toronto vs. $186.34 in Mississauga. Net rental rates (before TMI) are $13/per sq. ft. in the Toronto vs. $17 in Mississauga. Gross rents are not listed but are probably close to one another.
The taxes are an interesting matter. Despite Toronto's rate being much higher, nearly twice the amount, it does not generate twice the revenue. The higher taxes get capitalized into the value of the building. Toronto's higher rates are applied on lower assessment values. Which is why, despite the savings in developing in Toronto, the market value of the building is less. It might also explain why there is a difference in the gross rents. In Toronto they must be lower so as the tenant can afford the higher taxes. Leaving net rates about the same.
So developers look at it from this perspective, even though land and development fees cost more in Mississauga, the cost can be recuperated and a profit can be made. Not so in Toronto. In the proformas, it shows that building such an office in the city is not feasible. In Mississauga, despite paying far more for land and an additional 800,000 in development fees, a developer is can make a profit. Conversely in Toronto with cheaper land and development fees, such an office would be worth less (~4 million less) and not be profitable.
You might also want to take a look at industrial properties near the city borders like this comparison...
http://southofsteeles.blogspot.com/2007/09/coincidence-of-south-of-steels-and-sos.html
fouronesix
Active Member
That is interesting, can you provide me a link to the Hemson Consulting Report?
Glen
Senior Member
Sure..
http://www.toronto.ca/business_publications/pdf/TEDCO-Hemson-rep-jan-07.pdf proformas start page 84. Also you might find this interesting. Chapter 5 explains the tax capitalization dynamic (along with page 5 in the Hemson paper)
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